Builders Offer Incentives To Attract Buyers Priced Out Of The Market

Homebuilders continue to see sales momentum - despite surging mortgage rates and persistent affordability challenges - in part because they're pulling out the stops to lure buyers and ensure deals cross the finish line.

While a growing share of buyers have been locked out of the housing market because of rising mortgage rates, persistent home-price appreciation and a lack of existing home inventory, the current environment also is creating some tailwinds for builders that can offer more competitive financing.

Housing starts increased 7% in September to a seasonally adjusted annual rate of 1.36 million units, according to the Department of Housing and Urban Development and U.S.

While a growing share of buyers have been locked out of the housing market because of rising mortgage rates, persistent home-price appreciation and a lack of existing home inventory, the current environment also is creating some tailwind for builders that can offer more competitive financing.

In fact, 31% of homes available for sale in August were new construction, compared to a historical average in the 12th to 14% range, according to the National Association of Home Builders - underscoring how little inventory is on the market right now.

Still, the association noted, higher interest rates are affecting builders ability to move forward with their projects, as number of single-family homes under construction in September was 674,000, about a 15% decline from a year ago.

The most recent National Association of Home Builders/Wells Fargo Housing market Index, a monthly survey of U.S. homebuilders, found builders are using a range of incentives to lure buyers and avoid sale cancelations. The most prominent incentive is to pay closing costs or fees, which 34% of respondents said in the October survey they were currently doing.