Whether it’s the desire for a blank canvas home in a prime location, or modern living with the latest technology and features, people love newly constructed homes. Our housing market has shifted from the Spring of 2022 and a sudden uptick in new-build inventory is causing builders to scramble to attract buyers.
The pandemic housing boom saw builders get a little greedy. Eager to turn a higher profit, homebuilders ramped up production of unsold homes. Their thinking? Builders could easily find buyers before the so-called spec homes—short for speculative houses—are finished. When the housing market was hot, it went as planned. But the ongoing housing correction has flipped the script. Now homebuilders are fearing what six months ago was unthinkable: oversupply.
There’s not only a record number of unsold homes under construction, there’s also a record number of total homes under construction. Even sold homes are a liability for builders: Spiking mortgage rates are translating into a spike in buyers pulling out of their contracts. Look no further than homebuilding giant D.R. Horton, which saw its cancellation rate jump to 24% in its fiscal third quarter ending June 30.
Builders are wasting no time in their effort to offload homes. As the housing correction heated up this summer, builders turned to actual price cuts. Between April and June, the median sales price of new houses fell 11.9%. On a year-over-year basis, new house prices are up just 7.4%—compared to 21.3% in April. Builders have found that buyer-incentives are proving to be effective in many cases. Incentives offer some money to consumers whether through closing costs funds, money toward options and upgrades, or to help buy down the mortgage interest rate. In the Denver area we are seeing some builders offering concessions up to $20K toward interest rate buy-downs or closing costs, free backyard landscaping, and window coverings. Other builders are giving away free money (up to $10K in some instances) to keep current buyers under contract.
Are you interested in new construction? Contact us to learn more about current inventory and builder incentives. We’re new-build experts!
Article excerpts courtesy of Fortune Magazine.