Homebuilders offer bigger incentives to lure buyers

SALT LAKE CITY — Homebuyers around the country are looking for deals — and they're getting them.

Disappointing demand during the key spring season for home sales has homebuilders "piling on discounts as they struggle to entice buyers," according to a Wall Street Journal headline Thursday.

Data from John Burns Research & Consulting cited by the newspaper shows homebuilders offered incentives adding up to 7.2% of the home purchase price during the first two weeks of April, compared to 6.1% in January.

With the number of unsold newly built homes hitting the highest level since 2009, builders are trying to lure buyers by buying down mortgage rates, cutting prices, upgrading features and even giving away vouchers worth $5,000, the newspaper reported.

It's a "completely abnormal" trend, Rick Palacios, head of research for John Burns, told The Wall Street Journal, given that prices usually go up as temperatures warm and more buyers start looking for homes.

But mortgage rates nearing the 7% mark are taking a toll, along with buyer hesitancy due to the effect of President Donald Trump's tariff and immigration policies on pricing and financial markets.

On Thursday, the Federal Home Loan Mortgage Corporation, better known as Freddie Mac, listed the weekly average 30-year fixed-rate mortgage at 6.76%, down 0.05 percentage points from the previous week but still more than double what was available just a few years ago.

The newspaper concludes that "until mortgage rates fall, builders' profits will remain under pressure. Home hunters should keep an eye on their inboxes for deals. Builders will be spending more money than usual to tempt them off the sidelines."

In Utah, real estate agents have described the spring housing market as "weird." March sales were down compared to the same month in 2024, despite increased inventory, and pricing is seen as more important to closing a deal than ever.

When it comes to the sale of newly built homes, "everybody is still real busy, and everything is moving really well," said Ross Ford, executive vice president of the Utah Association of Home Builders. Ford said the association does not track incentives or their value.

Anecdotally, though, Ford said he's hearing from builders "their worry is (changes in) interest rates happen and if things slow, they want to keep the market moving consistently. Because it's better for them, it's better for all the subcontractors, it's better for the market as a whole."

That means offering perks to buyers. While that can mean finishing a basement or providing upgrades, he said "the one that I'm hearing that more builders like and seems to be more effective is they're helping buy down points" to reduce mortgage rates.

It's the most beneficial incentive, Ford said, since giving a buyer "some sort of perk in the house is nice, but it doesn't help them long term. If they buy down the interest rates, it gives them a lower monthly (payment) for the life of them being in that home."

Ivory Development President Chris Gamvroulas said Utah's largest homebuilder takes a "customer by customer" approach to buyer incentives that includes buying down rates, helping to sell or rent out an existing home, or offering additional customization.

"We spend a lot of time. We analyze what people need, and then we help them with what is going to be most helpful for them. People want a new home for a variety of reasons," Gamvroulas said. "Everybody's got a different story."

He said the incentives offered haven't increased as a percentage of sales and have been in place since the Federal Reserve started raising interest rates in 2022 to slow post-COVID-19 pandemic inflation.

"We've been very consistent with the services that we offer," Gamvroulas said.

April turned out to be "surprisingly good" for Ivory Homes, with about 10% more homes sold than anticipated, he said, "which gives us a lot of optimism. It seems that the market uncertainties are settling out, at least a little bit."

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