October 10th, 2014
As the housing market begins to cool in regard to home sales, consumers stand to profit if they purchase a new home.
Given the mixed pace of sales, many home builders are offering a wealth of incentives for buyers, Bloomberg reported. In August, for instance, the New Residential Sales report from the U.S. Census Bureau showed sales were at a seasonally adjusted annual rate of 504,000 units, marking an 18 percent gain compared to July and a 33 percent improvement over August 2013. July also showed improvements, but sales dropped in June.
Additionally, the improvements in sales have been uneven across the country, with Bloomberg noting the pace has been slow in Phoenix; Sacramento, California; and Orlando, Florida.
“Phoenix is very slow, Sacramento is spotty,” John Burns, a housing consultant based in Irvine, California, told the news source. “The investors came in and pushed prices a little too high. And then FHA rocked the new-home market really hard.”
As a result, builders are throwing in swimming pools, subsidized mortgage rates and built-in barbecues. According to The Wall Street Journal, these incentives also include premium flooring and financial assistance with closing costs.
What’s behind slow sales?
Mortgage interest rates are currently hovering around historical lows, with Freddie Mac reporting the average rate for a 30-year fixed home loan dropped week over week from 4.19 percent to 4.12 percent for the week ending Oct. 9. Given these favorable rates, many analysts are wondering why sales are slow.
Burns pointed to investor activity, which was stronger at the beginning of the housing recovery, as affordable, distressed properties were snatched off the market for rental conversions. As a result, home prices skyrocketed at an unhealthy rate across the country – though they are slowing now. With many unaffordable homes and the Federal Housing Administration decreasing its maximum amount for financing, builders have to roll with the market.
Bloomberg reported some builders are even discounting completed homes so the price is within the range needed for FHA financing. This is particularly true in Sacramento.
“There almost isn’t any new-construction home in Sacramento that would qualify for FHA under the new limits,” Greg Gross, a regional director for Metrostudy, a housing market research firm, told the news source. “Last year, there were plenty.”
In the end, the incentives stand to benefit buyers and builders, as the former gets access to advantageous financing, while the latter can move some inventory off the market.