With many homebuyers priced out, builders try to sweeten the deal
With many homebuyers priced out, builders try to sweeten the deal
Sales of new single family homes — meaning ones that have just been built — were way up in September, we learned today. 759,000 new homes sold last month, according to new data from the Census Bureau and the Department of Housing and Urban Development.
That’s up more than 12% from the previous month and almost 34% from a year ago.
With very little inventory of existing homes for sale, a lot of prospective buyers are looking at new construction. And many builders are offering incentives to close the deal.
At the end of last year Clark Ivory was getting really concerned about his business. He’s CEO of Ivory Homes, a building company in Utah.
When interest rates spiked, “We just saw traffic go to almost nothing, and sales really dried up,” he said.
Now though they’re in a much better position.
“We sorta found our footing, we figured out what we needed to do to buy down interest rates to make it still affordable for people,” said Ivory.
Today they’re able to offer mortgage rates around six or six-and-a-half percent, much better than eight.
Ali Wolf at the housing data and consultancy firm Zonda says a lot of homebuilders are working with lenders to offer lower mortgage rates, money towards closing costs or other incentives for would-be buyers.
“Builders will say, hey, we have $50,000, for example, and we will let you use this $50,000 however you want,” said Wolf.
A lower mortgage rate or closing costs? Maybe a fancier kitchen?
Clint Mitchell, a builder in Indianapolis, says his company Estridge Homes just started offering incentives in the last month as mortgage rates got closer to 8%.
They’re also doing buydowns but only on some of their homes, ones that are already done. And he says it’s bringing people in.
“We haven’t had very many that actually have taken the incentive that we’ve been offering because they’ve chosen to build but it has caught people’s attention,” said Mitchell.
Not all builders are able to buy down mortgage rates, says Logan Mohtashami at HousingWire.
“Smaller builders don’t have the money that the big publicly traded builders have… They can’t offer the buydowns, they don’t have the profit margins to do so,” Mohtashami said.
But for those that can like Clark Ivory in Utah, it makes financial sense on a $500,000 dollar loan.
“Typically, we’re spending $25,000 to $30,000 to get rates where we want them to be. But it’s far better to do that than it is to discount $80 to $90,000, which is what you’d have to do to get the same payment,” said Ivory.
And it’s definitely better than not selling the home at all.
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