“Completely Abnormal:" Homebuilder Incentives Proliferate

Homebuilders love the spring. The sun is out, flowers are in bloom and more buyers are in the market for a house.

But not this year.

Builders are expanding incentive offers to prospective buyers, a rarity during what is often the top-selling season for companies, the Wall Street Journal reported. These include mortgage-rate buydowns, price cuts and design upgrades. Builders are trying to offset a sluggish market and make moves before proposed tariffs could further hurt the bottom line.

Rick Palacios, head of research at John Burns Research & Consulting, told the Journal that the increased incentive use this spring is “completely abnormal.”

Builders were already doling out incentives in recent months to cope with the impending tariffs and the limited affordability options for buyers seeking new builds. But the trend has only continued. In the first two weeks of April, builders offered incentives worth 7.2 percent of home purchase prices, according to John Burns, up from 6.1 percent in January.

It’s frustrating for builders, who make roughly 40 percent of their sales during the season. It’s already half over and there’s little relief in sight.

And then there’s the macroeconomic picture. LGI Homes may soon need to raise prices after suppliers from China warned of cost increases for parts. D.R. Horton and Lennar, two of the nation’s biggest homebuilders, anticipate construction costs to jump by the end of the year.

Overall, builders are projecting an increase in home prices from $5,000 to $15,000 as a result of the United States’ trade war with China.

Baby boomers are raking in even more valuable incentives than the general public, perhaps a result of the stock market volatility burning their retirement accounts. Incentives are also ramping up in specific parts of the country, such as the Sunbelt, where listings of existing homes are rising, meaning more competition for builders.

Completed, unsold homes are at their highest level since 2009. Major homebuilder stocks, meanwhile, have fallen by roughly 40 percent in the last six months.

— Holden Walter-Warner