Builders Offer Incentives to Sell Homes

July 25, 2006 — -- Home builders don't like to talk about it, because it only makes it harder to sell houses. But because of an increase in the number of homes for sale, a majority of builders now offer incentives to close a sale.

In Sacramento, Calif., recently, Meritage Homes offered "Zero Closing Costs; Zero Payments for 3 Months." And another firm, Centex, advertised an "Offer You Can't Refuse," which meant up to $125,000 in savings. In Atlanta, a similar story: $5,000 toward closing costs.

With the number of homes on the market up 39 percent since last June -- the highest level in nearly a decade -- sellers offer plasma TVs and swimming pools to make a deal.

"I have builders who are advertising right now -- 'make me an offer' -- which is definitely scary," said housing analyst Ivy Zelman.

In the red-hottest markets, such as Phoenix and parts of South Florida, analysts said builders now rack up more contract cancellations than sales orders.

One culprit: rising interest rates.

In the past year, the average 30-year fixed rate mortgage is up more than a point from 5.6 percent to 6.7 percent. That has pushed mortgage payments up, making houses unaffordable for many buyers.

The other culprit in the downturn is that investors are rushing for the exits. Last year's hot market attracted lots of speculators. Now that it's cooling, they're looking to take profits, adding to the glut of "For Sale" signs.

All of a sudden, it's a buyer's market.

"People are going to have to come to the reality that if they want to sell their house, they're going to have to lower the price," Zelman said.

For now, many sellers seem to be resisting, which helps explain why the National Association of Realtors has seen 12 major cities suffer double-digit declines in sales last month, while only three showed double-digit increases.