The Housing Chronicles Blog: Builders trying everything to move inventory

Monday, February 18, 2008

Builders trying everything to move inventory

Incentives such as free granite countertops and upgraded flooring at new home communities are so yesterday. Now it seems that the only things that work are those which simply make it cheaper for buyers to afford homes, such as drastic price reductions, lease options and interest rate buy-downs. From a BigBuilderOnline story:

In Northern California, Central Valley, Sacramento and Reno, Centex Homes is promoting Centextravaganza. Prices at all 15 D.R. Horton communities in Northern California and Nevada will be dramatically reduced from 2007 prices. And in the Southern region of the state, through its "un-auction" sale, Horton is already touting savings up to 50% off seasoned spec inventory.

But while public builders like try to move houses by dropping prices during the spring selling season, Epcon Communities is spurring sales with the addition of two new buyer incentives that target today's sticking points in the home buying process: a 4.75% mortgage for both the buyer and the buyer's buyer and a lease-to-own option.

For one builder looking down the road to protect its brand instead of jumping at short-term solutions, avoiding price cuts is also about protecting previous buyers:

"We need to be responsible with our pricing," said Nanette Overly, vp of sales and marketing for Epcon, in a meeting with Big Builder on Thursday at the International Builders' Show. "Not just because we are a business and need to maintain financial integrity, but because of our residents. How do we look at them and take cuts with no consideration to their equity?"

At a meeting held in early January, management posed a question to the company's 130 sales professionals regarding interest rates: 'How many additional sales could you write this year if we could get you this rate--4.75%?' The response was virtually overwhelming. "Our own people told us [collectively] that they could capture 1,596 additional sales if we could offer a rate of 4.75%," said Overly. "So that's what we did."

In essence, Epcon committed to buying down the traditional 30-year mortgage loans from rates approaching 6% down to 4.75%. And in an effort to help prospective buyers move their existing homes, Epcon and Chase are also extending the rate through the process by making it available to those who would buy their customers' homes...

In another effort to aid with buyer challenges, the company just initiated a lease-with-the-option-to-buy program in its Central Ohio marketplace. Under the terms of the program, the home must close within a 12-month period. The effort garnered six participants in its first month and is now offered as a part of the builder's program in all markets.

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