Deep Discounts Offered on New Homes

Keys to New Home By David Wilkening

One of the most common phrases you hear goes like this: “It’s a great time to buy:” (a) a new paved driveway for your house; (b) a new car; (c) a new home.

You will certainly be skeptical of the first two answers and also the third. If you hear (c) from an overextended builder of new homes, however, there might be something to it these days at least under certain circumstances.

Builders all over the country are offering incentives but perhaps the best reason to buy is that prices are at all-time modern lows. Some single-family home builders have reduced prices 20 to 30 percent from already reduced prices a year ago. “It is the best time to buy a new home,” said Harley Rouda, chief executive officer of real estate firm Real Living. “Builders are being very aggressive with reducing their inventories.”

“I know builders right now who are selling off their inventory right around break-even prices,” said Matt Belcher, president of the St. Louis-based Belcher Homes. Other large national builders have reduced prices as much as 50 to 60% from their original asking prices just to rid themselves of the inventory. Critics say the lower prices demonstrate just how much builders were over-charging for new homes during the boom.

Lower prices, low interest rates hovering around 6% for a 30-year mortgage and incentives that allow buyers more choices combine to make the new home market attractive, but financing is tougher and tougher to get these days.

Despite all the incentives problems often come up obtaining mortgages. Reeves Williams, a southern builder, offered $20,000 in cash incentives to new buyers. The company sold 22 homes in a week but lost 17 of them because of credit issues as the hard-hit lenders have set up new roadblocks to borrowers.

“It was a huge hit. It was a credit issue. They didn’t have horrible credit but not good enough to get a loan they would have gotten six months ago,” said Martha Fondren, the company’s vice president of sales.

Incentives are across the board. They range from Harley-Davidson motorcycles to swimming pools to cash handouts. Basically, the three most common incentives include price reductions, an agreement to pay closing costs and upgrades on floors/interiors, or a combination of the three.

Then, there are even more creative wrinkles. In Boca Raton, Gordon Homes has offered to pay two years of property taxes and insurance worth as much as $150,000 on a $2.5 million home at its upscale Azura development.

In Crater Lake, Oregon, Realtor Diane Adams was offering to pay four months mortgage payments on a $975,000 home. So if you are in the market for a new home and have cash or can get credit, the best place to start your search may be with new home builders who have a lot of unsold homes.

“The first thing home buyers should look for is inventory,” suggested Ohio State University finance professor Anthony B. Sanders.

“You want to look for builders who have spec homes completed because on those homes builders will be more flexible because it is sitting inventory that they want to sell,” added Allan Domb, president of Allan Domb Real Estate in Philadelphia. Property with an existing home is obviously more costly for a builder to carry than vacant land.

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