Home Builders Boost Sales with Incentives

Property sales are slowing down in certain areas of the country, due to rising home prices and increasing mortgage rates, and as result some homebuilders are looking at new and more innovative ways of luring buyers. According to the article in the Wall Street Journal, some are introducing cash incentives while others are offering upgrades as a way of enticing people to purchase property.

These upgrades can help make the purchase of a newly built home more affordable for families through including garage door openers, high-end flooring and blinds, and free appliances. Some builders are offering to pay the buyers closing costs, or will reduce their mortgage interest rates for the first year, or will cover some of their down payment.

Even though the housing market has been steadily recovering, it's still well below the levels seen before the collapse. It's been predicted that sales of new property will only increase very slightly during the fourth quarter of this year due to concerns over the federal budget negotiations and higher house prices. This is in contrast to spring when home sales were relatively high and there was a shortage of new build property. As a result builders offered fewer if any incentives, and increased prices, with some price increases in the double digit percentages. Things began to change in the summer as mortgage interest rates increased and buyers felt less confident about paying higher prices for property.

In November last year a 30 year fixed-rate mortgage could be obtained for rates as low as 3.31%, but by last month this rate had risen to 4.57%. In addition there are concerns that the Federal Reserve will soon start to curtail its efforts to stimulate the economy.

A survey of 150 home builder sales managers throughout the country shows that 29% increased incentives in September, compared to 17% in August, and just 14% in September last year. In spite of these incentives, sales of new homes fell by more than 14% in July compared to June, although they did increase in August by 7.9%. However the average price remained unchanged. Experts think that incentives may have played a part in the August rebound.

In the past builders may have waited for buyers to ask for incentives, but now they are offering them up front. This is happening even amongst the largest builders in the country, but as a result profits will be lower, and it will put downward pressure on all builders’ prices. It's still good news for buyers looking for a brand-new home, and who may be able to move in with lower costs then they might've thought possible.