Builders Helping Buyers Reduce Mortgage Rates

With mortgage interest rates still high, homebuilders are using creative incentives to try to attract individual home buyers, such as mortgage rate buydowns.

NEW YORK – Homebuilders are trying to attract individual home buyers with creative incentivization amid high mortgage interest rates, including mortgage rate buydowns.

John Burns Real Estate Consulting estimated that more than 75% of home buyers nationwide are using mortgage buydowns. Nearly one-third said they are buying down the full 30-year mortgage, which can cut mortgage rates by up to 2% and save average home buyers thousands of dollars over the period of the loan

Builders are also using other incentives or concessions. For example, Lennar Homes tried to hold a Black Friday-style sale promotion to interest new buyers, while others are offering big discounts as well as free or reduced upgrades for finishes or appliance packages.

Mortgage buydown incentives are particularly concentrated in regions where home prices are seeing the fastest declines, including the Southwest. Homebuilder Taylor Morrison is one such practitioner, and CEO Sheryl Palmer told investors during the company’s third-quarter earnings call that the strategy appears to be working; the firm’s contract cancellation rate has held steady at around 4%, versus its historical average of nearly 7%. 

Source: Business Insider (12/13/22) Davis, Robert

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