Builders Offering Incentives

December 31, 2005

If you have been putting off buying that "new home," now may be the time to get a better deal. We've noticed an advertising trend by builders offering incentives to both buyers and agents alike. Up until this year, builders wouldn't even negotiate. Since about July when the market started to soften incentives started crawling out of the woodwork like a trail of ants after the sugar. The most extreme was the email ad for 6 months builder paid mortgage and 6% commissions to agents that brought buyers and closed before year end (we commented on this one several weeks ago). Here is an excerpt from an article published in the Washington Post this morning:

Facing Weaker Home Sales, Builders Sweeten Deals

Freebies Include Mortgage Help, Televisions

By Sandra Fleishman Washington Post Staff Writer Saturday, December 31, 2005; Page A01

Home builders around the region are luring would-be buyers with freebies worth thousands of dollars, in an attempt to prop up sales in a slowing real estate market.

Pulte Homes Inc. is offering a 42-inch television, free heat for six months or a $5,000 check for window coverings to some buyers. Ryan Homes will finish the basement free. NVHomes will throw in a golf club membership in some developments.

"Incentives are definitely on the rise," said Kenneth Wenhold of real estate research firm MetroStudy. He estimated that since July, when the market began to soften, buyer traffic at new-home projects has fallen off 30 percent and so have contracts. "With all the inventory, buyers now have more choices." ...

The number of homes for sale in the Washington area has more than doubled since last November, according to figures from the area's multiple listings service. The last time the Washington region had this many houses for sale was the late 1990s, before low interest rates and a growing job market fueled the years-long boom in home sales.

During that boom, even while houses and condos sold as soon as they came on the market, builders sometimes offered limited year-end deals. They have also routinely given buyers a break for using approved lenders or title companies. But those incentives were nothing compared with what's going on now.

Among the deals showing up in ads and sales offices are upgrades to gourmet kitchens, six months of mortgage payments, a year-long lock on interest rates and tens of thousands of dollars toward closing costs. Many of them have been promoted as year-end or holiday specials.

In the Washington area, incentives can amount to as much as 5 percent of the sales price, according to Daniel Oppenheim, an analyst with Banc of America Securities. One problem for builders, he said: Investors who bought recently are reselling to cash out.

"All of a sudden the new-home builder is not only competing with the resale market but with the exact same home they just completed," Wenhold said.

Read the full article here.

It is reported that over 25% of the new homes homes sold in this region the last two to three years were bought by investors looking to make a quick profit. There are an abundance of these homes now on the market by those that couldn't get out soon enough. Bad news for sellers. Good news for buyers. Many of these can be had at a steep discount.

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