Home Builders Reducing Prices

To put it lightly, 2023 is an interesting time for real estate. Interest rates have made buying a house a tough decision for home buyers. Yet somehow, new construction home sales make up one third of inventory. To put that into perspective, the historical norm for new construction inventory is 10% of all homes on the market. So what’s happening? With crazy inflated prices and high interest rates, how are new construction home sales so high?

Builder Incentives

I spoke with a new home sale consultant from D.R. Horton yesterday and he said April was their biggest month for 2023 so far and that they haven’t missed budget in last 6 months. They’ve been offering all kinds of incentives like:

• $30-$50k toward upgrades or off sale price
• Buying interest rates down to 4 - 4.5%

‍

According to Julian Hebron, in the month of April, 30% of builders reduced prices and 59% offered incentives. The average price reduction was 6%. 

‍

Will This Trend Continue?

After April’s great performance, builders are starting to think demand might pick up again organically. Some of the incentives we’ve seen throughout 2023 are reportedly starting to dry up. In March 36% of home builders offered incentives. In April, only 30% offered incentives. This is due to builder confidence. One of the external factors building confidence is that banking turmoil has not seemed to have an effect on mortgage loans yet. The average fixed rate loan has gone from a high of 7% in 2022 to 6.4% in 2023. This appears to be increasing demand as well. 

‍

Looking at the data, it appears that incentives could be on their way out - or at least declining. 

‍

Other Roadblocks in New Construction

There is a massive transformer shortage in the US right now. There are new construction homes that have been completed for months just waiting to be connected to the power grid. What makes it even worse is that some buyers' incentives and locked in mortgage rates are starting to expire. 

‍

There are only 3 transformer distributors in the US and 80% of manufacturing is done overseas. There’s also a global shortage of raw materials to manufacture transformers. However, according to our sources at DR Horton, there is a large shipment coming to the US in July that should help alleviate current shortages. 

‍

Are Homebuilders Reducing Prices?

The short answer is yes. We’ve seen price reductions and incentives throughout 2023. Are incentives still out there? For now, yes, but the more homes sold means the less likely builders are to keep offering incentives or reducing prices!

If you have any questions about construction bookkeeping, accounting, best practices or want to join our construction bookkeeping community, check out our resources and original content at ConstructionBookkeeping.com

‍