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New homes will bring good deals

SUNDAY, MARCH 13, 2011

A home with a pending sale sign is shown in Palo Alto, Calif. Builders have been quicker to drop prices this spring on some homes, particularly those that are already built and ready to sell. (Associated Press)
A home with a pending sale sign is shown in Palo Alto, Calif. Builders have been quicker to drop prices this spring on some homes, particularly those that are already built and ready to sell. (Associated Press)

Builders aggressively pricing homes earlier in buying season

LOS ANGELES – The spring home-selling season is under way, and homebuyers have more leverage this year to get price discounts and other perks on new homes than in years past.

It’s the busiest time for homebuilders, which means they are under less pressure to lower prices. They typically reserve the best bargains for the fall, when they look to thin their slate of unsold homes.

But this year is different. Homebuilders are coming off their worst year in almost a half century, and that means builders are hard-pressed to rack up sales sooner, rather than later.

“In a normal year, I would tell you, you have a better shot buying off-season” to get a lower price, says Stephen East, a Ticonderoga Securities analyst. “This spring … they’re being aggressive early on.”

Builders are counting on spring sales to hoist them out of their doldrums after seeing new-home sales sink last year to 322,000 homes – a 75 percent drop from their 2005 sales peak.

High unemployment, tighter bank lending standards and uncertainty about home prices have kept many buyers from entering the market. Builders also face heightened competition from resale homes and a glut of sharply discounted foreclosed properties.

The industry got help last spring from a temporary federal tax credit aimed at stoking home sales, but this year, it’s all up to builders to woo buyers.

Many are offering a wider range of incentives, such as upgrades on appliances, cabinetry, flooring and other home features. Some also will throw in money to help reduce the size of buyers’ mortgage payments.

Builders such as Shea Homes are offering houses on larger lots, giving buyers a bigger back yard at no extra cost. “We’re also giving a lot more standard features with a home, particularly energy saving features,” said Rick Andreen, president of the company’s Active Lifestyle Communities.

Homebuilders favor including thousands of dollars in bonus amenities and other upgrades to lowering prices because that can hurt their profit margins.

That’s because when builders offer to include nicer kitchen counters, for example, they’ve negotiated a deal with manufacturers to get them at a significant discount. That’s a bigger value at less cost than it would be to give homebuyers the same cash value.

During a recent sales promotion held by Toll Brothers Inc., the builder’s suppliers threw in upgrades on cabinets and Kohler fixtures, among other features.

Sharp discounts on the price of the home itself also can result in lower property appraisals, which can have a ripple effect on home values and undermine builders’ ability to raise prices.

Still, builders have been quicker to drop prices this spring on some homes, particularly those that are already built and ready to sell.

In the November to January period, the median price of new homes declined 1 percent nationally, according to a survey of builders conducted by John Burns Real Estate Consulting.

“It was very clear that by mid-February, the builders were already discounting,” said Jody Kahn, a firm vice president.

Builder PulteGroup Inc. advertised a weekend-only deal for a house outside Sacramento, Calif., last week. The three-bedroom, two-bath house was originally listed at $309,990, but the builder reduced it 6.5 percent to $289,990.

“Depending on the community, there might be certain homes that are inventory and they want them to move, and so you are going to have more success in finding an incentive for that specific home,” said Jacque Petroulakis, a spokeswoman for PulteGroup.

Many builders prefer to start construction on a home only once they have a buyer, but sometimes transactions fall through and the home sits empty. Having too many of those unsold homes becomes a drag on builders’ balance sheets, particularly in a market with falling home values.

Large builders tend to offer different deals from one market to the next. A development in Phoenix, where builders are under intense competition from foreclosure sales, for example, may offer discounts, while a community by the same builder in a healthier market, such as Seattle, may not.

Builder CBH Homes, which has homes priced from about $90,000 to $250,000, tries to keep prices in line with foreclosures, its biggest rival for buyers these days.

“There are homes that come on the market that are just so low there’s not a whole lot you can do,” Haener said.


 

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