With mortgage rates now sitting at over 6% and home prices still close to record highs in North Texas, builders are struggling to spur demand. To help lower elevated inventories before the end of the year, homebuilders are offering incentives to would-be buyers.
According to Ted Wilson, principal with Residential Strategies based in Dallas, previously surging sales in the region have waned. Now, builders facing a glut of unsold homes are looking for creative ways to unload stock.
“Builders are curtailing their starts until this inventory is worked down,” Wilson said. “Moreover, in most instances, builders are offering incentives such as mortgage rate buy-downs as well as price reductions to incentive (sic) buyers.”
Builders in North Texas are searching for the “magic bullet” to generate demand, said Matt Lasiter, a regional director for Drees Homes.
Lasiter explained, “We’re facing a scared buyer right now … They’re hesitant to make a move. Overnight, we saw would-be buyers run to the sidelines and bury their heads in fear of making that decision.”
To remedy the situation, he said, “We, as builders, are trying to find that magic bullet to draw them back out and make them comfortable enough to realize that it is still a good time to buy a house.”
Houston-based D.R. Horton trimmed prices considerably. Its Remington Ridge development experienced upwards of $30,000 in price reductions, up to an 8% cut to its listing prices.
Additionally, the builder increased commissions for real estate agents, raising them from 3% to 4% to help encourage sales.
Other builders have attempted to attract buyers through creative financing structures. Taylor Morrison offered interest rate buy-downs and closing cost assistance that can save upwards of $65,000 on a new home.
Drees Homes, in partnership with First Equity Mortgage, offered prospective buyers up to $25,000 in “Flex Cash” when purchasing a new home. The incentive can be used to reduce the listing price, lower closing costs, buy down the mortgage interest rate, or simply upgrade the home’s finishes.
Commenting on the current real estate environment, Lasiter said, “We’re all tracking what each other is doing. We want to be aggressive with those (incentives) and be on the forefront of people’s minds, but not give away so much to where it really just hurts our bottom line.”
Lasiter went on to say, “It’s definitely a fine line to walk … We do still have to make money at the end of the day, but we do need to sell some houses and keep our people busy.”
Greed got them what they needed. Costs for them became insane and a step back may get things priced properly again. Then again the $125% financing may be coming back. Interest rates are also way up, perhaps builder buydowns will return like in the 80s. The ARM will make a comeback?