re: Homebuilders cancelling contracts to sell for more on market

I know...sorry TL;DR...unless you're interested to hear from an insider...
Being heavily involved in the building material supply industry for the majority of my 30 year professional career on the engineering and estimation side of things, I just have to disagree with anyone blaming this on governmental policy's, inflation, the fed, etc. It is pretty clear to me the majority problem is commodity pricing of building materials. While of course those other factors play a role, it is not the primary factor in the OP's story that started this thread. I say this because I have personal experience in the past few years under these current market conditions, doing design and estimation for builders pricing out their jobs. It used to be standard practice for lumberyards and building supply company's to hold their bid pricing for a maximum of 30 days (with some exceptions for extreme high volume builders). With the crazy cost fluctuations that have been occurring since the start of Covid, which created variables unseen before...those timeframes have moved to 15 day maximum price guarantees. And from my experience, the supplier margins stay pretty consistent. I have worked in this field in the South, West and Northeast and witnessed it to be basically the same process in all parts of the country and it is being driven by basic supply and demand. During the lockdown phases of Covid, the mills shut down reducing available product. Unaccounted for was the amount of people during a shutdown with time on their hands that then wanted to do tons of DIY and renovations. While summer of 2021 started to see a correction moving prices back down some, demand exploded thanks to those that had been holding off and pounced when they saw the market heading downward. This threw it all out of whack again, which is our current situation.

Point being, these homebuilders are well aware of the price fluctuations in advance. I have had bids that builders went to contract on 4-6 months (and longer) after they were provided with that bid without updating, having their cost of materials increasing anywhere from 35% - 75% in that timeframe. Some account for this possibility and some do not, so it depends on a particular builders ability to business plan. What you run into is, especially in these high volume markets, certain builders will price their bid on the low-end to win the bid while having an escape clause in fine print on the contract making it as pointless as a toilet paper hammock! However, in the markets that are predominately higher quality custom homes, these company's are factoring these variables in and not too concerned about losing the business, because they are already booked out for a year or more as it is anyway.

Something I have always thought about when it comes to contract pricing in a field largely affected by commodity pricing...why isn't there some sort of floating price clause built-in to protect everyone? Especially if there are project times that go 6 months or longer. The answer (from what I have seen) is the historical fluctuations have never been this severe and are currently unprecedented. Historically, they haven't been bad enough to create such severe loss and often worst case scenario was breaking even. So the reason for this is simple, they do not want to miss out on increasing their profits during a pricing downturn which happens almost 50% of the time...until recently. So basically...greed. Instead of maintaining professional integrity, they will sacrifice that for what has historically been a golden opportunity to pad their profits.

Just my personal observations from the inside.