By Holden Lewis | NerdWallet.com
For home buyers who struggle to find suitable existing homes for sale, it may be time to look at new construction.
Homeowners continue to hang onto their low-rate mortgages rather than selling, keeping existing homes off the market. Meanwhile, homebuilders have hundreds of thousands of unsold dwellings in their inventories. And many homebuilders are offering incentives to prod buyers into signing purchase contracts: According to the National Association of Home Builders, 57% of builders offered some kind of incentive in February.
Even first-time buyers, who tend to have lower housing budgets than move-up buyers, could benefit from shopping where new houses or condominiums are going up. Believe it or not, a few builders pursue first-timers. D.R. Horton is one; it reported that 65% of homes it sold in 2022 cost less than $400,000.
Understanding how new-construction deals work differently from existing home sales can help you find the savings hiding behind the sticker price.
Builders prefer incentives to lowering prices
The NAHB says 31% of builders reduced prices in February, by an average of 6%. That’s a sign of distress; builders don’t like to trim prices.
“You can’t just blindly reduce prices,” Sheryl Palmer, CEO of Taylor Morrison Home Corporation, said in a recent earnings call with analysts. “I think the more you just reduce prices, the more the consumer expects us to do.”
Plus, cutting prices in a housing development can infuriate customers who bought earlier, at higher prices. Using incentives can decrease the total cost of the buyer’s contract while making it appear they paid the same as their neighbors.
Palmer added that customers mostly need “help on monthly payment and help with cash to close.” Builders across the industry have landed on that same conclusion, so they’re focusing on financial incentives to get homes sold.
According to the NAHB, in November:
- 29% of builders paid closing costs or…
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