Home Builders Sweeten Deals to Fight Sales Slump
The slowest national housing market in years is forcing some home builders to roll out deep discounts, car giveaways and other special promotions to woo buyers.
Although deals are typical this time of year, the number and scope of the incentives may be unprecedented, local developers and real estate experts said. Some of the discounts end Sunday, as home builders - faced with competing against fellow developers and existing-home sellers - seek to meet year-end sales quotas.
“I’ve been here 13 years, and I’ve never seen bigger discounts,” said David Mueller, general sales manager of Orleans Homebuilders. “I’ve said to my parents and closest friends, `You’re crazy if you don’t buy today.’ ”
Orleans Homebuilders is offering up to $35,000 off certain higher-end homes in some local subdivisions and up to half off on options in some of its lower-end properties.
The catch: Buyers have to secure mortgages through Orleans subsidiary Alambry Funding Inc.
Builders’ mortgage firms sometimes include higher interest rates, which can offset incentives.
Alambry tries to “get within an eighth of a percentage point” of the area’s lower interest rates, Mueller said. “Sometimes we’re lower, sometimes we’re higher.”
Local rates for a 30-year fixed mortgage on a $175,000 loan for single-family home range from about 6 percent to 6.8 percent, according to Bankrate.com.
The Federal Reserve responded last week to fears in housing and credit markets by cutting a key interest rate by a bigger-than-expected half-point.
Meanwhile, builders are scaling back construction, slashing costs and writing down land values.
Home builder Lennar Corp. on Tuesday reported a net loss of $513.9 million, or $3.25 a share, from a profit of $206.7 million, or $1.30 a share, a year ago.
The nation’s second-largest home builder said it had laid off 35 percent of its work force this year and expected further cuts in the fourth quarter.
Tightened mortgage lending is making it harder for potential home buyers to afford a house. The softer demand comes after years of heavy building, particularly in hot markets like Florida, that has left a glut of supply.
The U.S. Census Bureau reported that in the 12 months ending in July, sales of new homes nationwide dropped 10.2 percent. New home sales in the South dropped 3 percent during that same time. The Census Bureau will report August figures on Thursday.
While builders increasingly have turned to incentives, there’s a potential dark side for consumers.
In recent years, Beazer Homes USA won business for its mortgage arm by promising incentives, such as paying for closing costs. But an Observer investigation published in July found that Beazer in some cases in the Charlotte area recouped those incentives by charging higher interest rates and fees.
The newspaper’s analysis showed that financing of closing costs was among the factors associated with an increased chance of foreclosure.
At least 11 Beazer developments in the Charlotte area have foreclosure rates at or above 20 percent, the Observer has reported. The national average is about 3 percent.
Beazer now is offering to pay up to 3 percent of the sales price in closing costs if the purchaser uses Beazer Mortgage. “However, the use of Beazer Mortgage is not a condition to receive other incentives,” Thomas Bruce, who heads Beazer’s Charlotte office, e-mailed the Observer Tuesday.
Beazer is offering up to $30,000 in kitchen or bedroom storage upgrades, he said.
Other home builders also have unfurled sales to clear inventory.
Trotter Homes launched its “Home for the Holidays” deal earlier than usual this year. It’s offering $8,000 off on upgrades or options. The company, which does not have a mortgage unit, hopes to sell nine properties in Matthews and Mooresville by December 31, said president Paul Trotter.
GB Homes is offering a Ford Focus for those who buy certain starter homes in the area by month’s end. The company’s Web site says it uses “an array of reputable mortgage partners.”
And M/I Homes says in full-page ads that it has dropped prices on all “Express Delivery Homes,” and guarantees a 30-year fixed-rate mortgage at 4.875 percent - provided buyers use subsidiary M/I Financial Corp.
Collectively, the discounts represent “real reductions,” said Richard Buttimer, a finance professor who teaches real estate at UNC Charlotte. “When they start talking about putting in free rooms that they were charging for a year ago, that’s a real decrease.”
Karla Knotts, a Charlotte real-estate consultant and president of Land Matters, said she’s not surprised by the push.
“You’re motivated if your bonus hinges on (meeting a sales quota),” she said. “If you were supposed to sell 500 units and you’re at 350, you’re going to do what you can to get to 425 — it looks better.”
Rise in Charlotte Property Prices Slows
Charlotte is one of five cities in a 20-city index where existing home prices increased for the 12-month period ending July, according to the Standard & Poor’s/Case-Shiller report released Tuesday.
However, the local increase was slower than in the previous year, reflecting a nationwide decline in housing prices.
Charlotte saw a 6 percent increase in sales prices for the 12-month period ending July, compared to 7.5 percent for the 12-month period ending July 2006. Only Seattle with 6.9 percent saw a larger increase.
Also on Tuesday, the National Association of Realtors reported sales of existing homes declined for a sixth straight month in August, pushing activity to the lowest point in five years.