Home Buyers Cash in on Market Slump

It's no secret that real estate is experiencing a market slump; in fact sales are lower than they've been in 16 years. Wall Street economists compile a seasonal market forecast; a rating higher than 50 indicate a positive market. The current forecast was only 30 and has remained below 50 since may of 2006. Gone are the golden years of bidding wars or listings at unrealistically high prices. For the seller, it's time to come back to reality and do whatever it takes to sell your home. For the buyer, your time has arrived!

What has caused this slump? It's actually a combination of factors including high mortgage rates; 30-year, fixed-rate mortgages average over 6 percent, the highest in over a year. Also, tighter standards have been imposed for obtaining a mortgage, thus decreasing the amount of qualified buyers. The overall market uncertainty has created some wary buyers who are content to stand by and watch the housing trends.

With new homes creating about 15 percent of all home sales, there is a glut of inventory in the homebuilder industry. What do stores do when they have extra stock; they have a clearance sale! As a result the market is saturated with buyer incentives offered by over 70 percent of U.S. builders trying to unload their homes. Some of the rather lucrative deals we're seeing are:

Centex Homes is giving away outdoor living packages worth up to $33,000 to speed sales. Giveaways include decorative concrete patios, wooden arbors, outdoor fireplaces and grills.

Ryland Homes has been advertising "free fantasy vacations" to catch the eye of potential buyers. Purchasers in its subdivisions can choose from trips to the Caribbean, Mexico or Las Vegas.

Ashton Woods is holding the grand opening of its new townhome community of Rockbrook in Lewisville. The first 10 buyers will enjoy $15,000 in options – up from the standard $10,000 incentive.

Grand Homes is offering a free swimming pool or $12,500 in upgrades. For their golf course community of Lantana, they are offering a free golf membership.

American Legend Homes is appealing to football fans by offering a 42-inch high definition plasma screen television.

Other builders are simply chopping prices.

Both Coleman Homes and Grand Homes have recently advertised price cuts of $40,000 to $50,000 on some of their finished houses.

Another major builder, K. Hovnanian Homes, held a nationwide "three-day sale" this month to trim its inventory. They forecasted a sale of 1000 homes and actually sold 2100. They lowered their price to do this, but made up the difference in the volume of sales.

City Homes in Addison is offering $30,000 off the purchase price.

Realtors are trying to compete with the new home sales by offering their own incentives. VIP Realty is offering a rebate of up to 1.5 percent of the sales price if you use them as your exclusive agent.

There is, inevitably a downside to all of these promotions. One of the problems is keeping up with the incentives. One realtor cautions his customers that there could be a better deal next week. They also seriously cut into the profit margin, as these giveaways are expensive and many companies are losing money because of it. It also creates an impression of 'buy now or miss out'. Prospective customers may purchase before they are ready or on the flip side, hold back because they feel overwhelmed. Currently the federal government has been investigating the legalities of all of these incentives. Although no final reports are available, there are some basic considerations to keep in mind.

Make certain the cost of the incentive is not built into the price of the home, as it must be a legitimate perk.

If the promotion involves financing, the buyer cannot be coerced into dealing with the builder's financial associate.

If the incentives exceed 6% of the purchase price, be cautious; generally even high risk customers are required to put at least 10% down.

If it sounds too good to be true, it probably is.

Either way the lower prices and free giveaways are definitely great for the buyer; go ahead and enjoy them while they are here. Make certain you find a real estate agent you feel comfortable working with, as nothing replaces the sound advice you can receive from a trusted agent.