Just like any good retailer, the country’s home builders are resorting to promotions to jumpstart their businesses.
Even as demand remains high for homes, builders are finding they need to incentivize potential buyers to sell a growing number of unsold homes. Recent reports have outlined a number of promotional activities they are resorting to when it comes to moving their inventory.
In addition, builders have said they are being more careful in their buying plans for raw materials, including lumber, as well as developing properties that are often smaller or more inexpensive to construct.
A National Association of Home Builders and Wells Fargo Housing Market Index survey this summer found that about two-thirds of builders were using incentives and nearly 40 percent were cutting prices by an average of 5 percent. This compares to only 29 percent earlier this year, in April.
Wells Fargo analyst Sam Reid told the New York Times that for right now, this was just part of a normal cycle but that if incentives continue to increase even as inventories of unsold homes remain high, “realistically, the sector is likely to unwind.”
In a recent New York Times report on these activities, Lennar CEO Stuart A Miller was cited telling analysts that it was offering incentives of as much as 13 percent of a new home’s cost versus the more historic rate of 5 or 6 percent.
Miller also said Lennar is continuing to be more aggressive in negotiating with its raw materials suppliers, which so far has resulted in “construction costs…actually decreasing over the past two and a half years.” He added, “We are putting increasing pressure on our trade partners to force costs down further.”
The NAHB is estimating that the cost of building a new single-family home would be “down at least 10 percent this year.”
