Home Builders Lure Buyers With Incentives

Feb. 16. 2006 —, 2006 -- For years, the best deal you could expect in a Sunday newspaper was a special on canned soup at the local supermarket or an end-of-year price cut at the local car dealership.

But thanks to the changing real estate market, consumers are finding great deals on what is, for many, the biggest purchase of their lives.

Centex -- one of the nation's largest home builders -- has been running full-page ads in papers from Virginia to the California coast touting limited-time offers of $150,000 off a new house.

The company is hoping the steep discounts will lure hesitant buyers into their model homes and sales centers at a time when mortgage rates are rising and the growth in home values is petering out.

"Our 12-hour sale is their one and only opportunity to save up to $150,000 on that new home they have been dreaming about," boasts one of Centex's ads in Sacramento, Calif. "Our sales offices will be open until 10 tonight so that everyone has a greater opportunity to tour our models and select their favorite home."

Centex isn't alone. Inventories of homes for sale have gone up by more than 20 percent in the past year, shifting market power from sellers to buyers. That means innovative, sometimes unbelievable, incentives for buyers are becoming almost as common as "For Sale" signs in the real estate landscape.

"I think we'll see many builders offering incentives over the next three to six months, maybe the next year," said Bernard Markstein, director of forecasting for the National Association of Home Builders. "Eventually, the supply-demand equation comes back into balance, and then the need to provide incentives will disappear."

Buy a House, Get a New TV

The deals are as varied as the styles of homes. Some buyers are walking away with $10,000 gift cards for furniture and electronics stores when they get the keys to their new homes.

Special financing deals are becoming commonplace as the publicly traded home builders like KB Homes, Pulte and Lennar package financing with the bricks-and-mortar at the core of their business. Other builders are throwing in thousands of dollars in "free upgrades" to the homes they are trying to move. Buyers can add crown moldings, fine wood floors and top-notch fixtures at no cost.

It's also not uncommon to find developers waiving the premium prices they used to charge for the best lots.

Tougher Sell as Rates Rise

The enticements are all meant to counteract increasing hesitance on the part of buyers.

Mortgage rates have been on a steady upward path, rising from about 5.5 percent a year ago to 6.25 percent for a 30-year fixed rate note today. And the median price of a home increased as well, up some 13 percent last year.

Those two factors mean the average home buyer has to pay $200 more per month in mortgage payments and will spend an additional $60,000 in interest charges over the lifetime of their home loan.

So will the deals bring more people into the market? Analysts say these incentives likely won't bring in new buyers but they could pull people on the edge into the market a few months early.

"Getting a gift certificate from Best Buy isn't a reason to go out and buy a house," Markstein said. "But if you're getting ready to buy anyway, these things can be a real benefit in the short term. It might be a good reason to buy a home now rather than wait a month."