Builders Sweeten the Deal to Win Over More Buyers

Home buyers fear they’re overpaying on higher home prices, so more homebuilders are offering incentives to ease their doubts. Sixty percent of homebuilders in March reported offering some form of sales incentive to attract more home buyers, according to the latest survey data from the National Association of Home Builders.

It appears to be paying off: New-home sales are rising, and builders are ramping up construction of new single-family homes nationwide to meet an uptick in demand.

“Single-family housing is poised for a good year in 2024, with starts and permits on an upward trend,” says Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis.

Single-family housing starts jumped nearly 12% annually in February, reaching a 1.13 million seasonally adjusted annual rate—the highest level since April 2022, the U.S. Department of Housing and Urban Development and the U.S. Census Bureau reported Tuesday.

“The solid level of single-family production in February tracks closely with rising builder sentiment, and with mortgage rates expected to moderate further this year, this will provide an added boost for single-family building,” adds Carl Harris, NAHB’s chairman. “But policymakers need to help the industry’s supply-chains in order to protect housing affordability and add much needed supply to boost inventory.”

Buyers have gotten nervous about prices, as the resale market continues to reach record highs in sales prices.

Ali Wolf, chief economist with the housing research firm Zonda, said at a press conference last month during the International Builders’ Show in Las Vegas that builders may be in a better position to respond to buyers’ hesitation over prices. “To get them to feel more comfortable, they need to at least feel like they’re getting a deal,” she said, noting that builders increasingly are offering sales incentives, like funds toward closing costs (up to $20,000) or “flex dollars” to use toward home upgrades.

Homebuilders also have been showing more willingness to negotiate on the home price, an area they’ve traditionally shied away from in the past. About a quarter of homebuilders reported reducing their prices in March, with an average 6% price reduction, NAHB’s data shows. That said, homebuilder price reductions have reached their lowest level since July 2023.

Builders Take Action to Boost Sales

New-home sales sank to low levels in 2022 and early 2023, due to inflation and high costs of building materials. Since then, homebuilders have been ultra-focused on how to boost sales and take advantage of buyers who’ve grown increasingly frustrated with the lack of choices in the resale market.

In 2023, builders made the following efforts to try to increase new-home sales, according to NAHB’s survey data:

• Offered sales incentives: 62%
• Built smaller homes: 38%
• Cut home prices: 36%
• Offered more affordable finishes and designs: 33%
• Shifted production mix toward lower-priced homes: 23%
• Built on lots farther away from urban core: 18%
• Built on smaller lots: 17%
• Built more townhomes: 14%

Looking ahead, builders are feeling confident that their efforts are paying off. Builder confidence in March climbed to its highest level in eight months, and homebuilders show the most optimism about current sales conditions and sales expectations over the next six months. “Buyer demand remains brisk, and we expect more consumers to jump off the sidelines and into the marketplace if mortgage rates continue to fall later this year,” Harris says.