Builder incentives Change With the Times
Posted by: Carleton Sheets in Real Estate, Incentive, Housing Market, Economy, Credit crunch, Buy Down, Builder on Jan 29, 2009.
It's interesting to see how builders' incentives to prospective buyers are changing. In previous blogs, I wrote about builders offering flat-screened TVs, new microwaves---and even a free car to entice buyers to purchase homes. And their incentives continued to "grow" as the housing market declined---free upgrades, free trips, and prices slashed even further.
I just read an article in the Wall Street Journal reporting that as the slump in the economy worsens, builders are continuing to add incentives to try to move their inventory. These "new and improved" incentives include a longer loan life, delayed payments, and low rates through interest buy downs (buying down the mortgage interest rate for qualified buyers). However, you should also be aware of another article that I read concerning HUD's new ruling on preventing builder incentives. Originally scheduled to take effect in January, the ruling was postponed for 90 days. If it passes this Spring, the ruling will certainly have an effect on what builders can offer buyers who use HUD-affiliated mortgage and title insurance companies.
The builder's goal, of course, is to sell inventory. Even when prices are down and they won't make very much money on the deal, they need to stay liquid ... and that means moving inventory. My personal opinion is that offering more incentives to buyers is a creative move on the part of builders in a rough economy. These builders are just trying to ride out a tough market and wait for better days ahead. But will it make a difference?
What do you think? Are these incentives-which are becoming more and more creative-the only way for builders to survive in this market ... or will they become a "last-ditch effort" for desperate builders?
