Mike and Crystal Green couldn’t have picked a worse time to look for a new home. In mid-February, Mike was offered a promotion to be regional sales manager at Chatsworth Products, a computer security company. The catch was the couple would need to relocate from California to the Houston area by April 1.
The Greens accepted an offer on their West Sacramento, CA, home two days after it went on the market in early March. But by then, the Greens didn’t feel safe flying to Texas to check out houses given the coronavirus pandemic. States across the country were urging workers to stay home if possible and practice social distancing when out in public to combat the spread of the coronavirus.
That wound up working in their favor. The Greens went online and took a virtual tour of a home they liked. It was in a new development with more than 300 homes in the Houston suburb of Conroe, TX, called Grand Central Park. They spoke with the sales representative for builder Drees Homes and were able to choose custom details—and got a discount on a home originally listed at $420,000. The 2,800-square-foot, four-bedroom, 3.5-bathroom house is located in one of the nation's hottest markets.
If they closed in March, the builder would throw in a free Whirlpool refrigerator, washer, and dryer worth about $7,000 as well.
The Greens, it turns out, have plenty of company on the receiving end of a wave of aggressive incentives for buyers of new construction. With a global health crisis raging and the ensuing financial fallout resulting in more than 33 million Americans filing for unemployment, homebuilders around the country are offering discounts, throwing in freebies, and covering closing costs to attract buyers and close deals.
They have to do something. Tours of new-home models have dropped due to stay-at-home orders and more potential buyers deciding to put off their home searches until the worst has passed.
"It’s not every day you purchase a home sight unseen or move in the midst of a pandemic," says Mike Green. "But everything fell into place.”
About 96% of builders said stay-at-home orders, social distancing, and other mitigation procedures have been reducing buyer traffic to newly constructed homes, according to a recent National Association of Home Builders poll. That's bad news for builders, many of whom already have homes and developments in the works. And it may make them more likely to negotiate deals.
“Clearly, the market has frozen,” says NAHB's chief economist, Robert Dietz. “Builders with standing inventory will seek to sell it as quickly as they can.”
He estimates that nationally, builders have about 80,000 completed homes that are ready for buyers. An additional 540,000 abodes are in some stage of construction.
Sales of newly constructed homes fell 9.5% in March compared with the same month a year ago, according to the most recent report from the U.S. Census Bureau and U.S. Department of Housing and Urban Development.
Dietz expects the pace of new-home sales to continue to slow as jobless claims climb, with April and May to be "really bad."
"The market is on pause," says Dietz. "Incentives will be used to offset prices as we see a surge in unemployment."
What deals can buyers score on new construction?
To ensure demand for homes continues during the COVID-19 pandemic, Drees Homes reworked their promotions to appeal to buyers. (Drees was the builder of the Greens' new house.) Buyers can score $1,000 off if they sign a contract by the end of May and an additional $5,000 toward closing costs for those who book a tour virtually or in person. (Drees Homes puts up more than 2,000 homes a year.)
That's in addition to $10,000 to be used for outdoor amenities like kitchens and entertaining areas with streaming music amplifiers and patio speakers. That's higher than the usual $5,000 to $8,000 promotional discount they typically offer this time of year.
"Right now we are just encouraging buyers," says Alicia Engelking, marketing director for Drees Homes in Houston. "We’re still here, and we’re open for business.”
In Florida, Neals Communities also began offering incentives as it noticed a sharp drop-off in buyer traffic in mid-March, even though the state's governor didn’t issue stay-at-home orders until April 3. Out-of-state folks weren't coming in to look for properties, and locals weren't venturing out.
So the builder began offering no-closing-cost deals for up to $18,000 on its 80 homes that are either finished or currently under construction in communities stretching from Tampa to Naples on Florida's west coast. Typically, the company offers incentives on only a few, select homes and only for homes priced at up to $400,000. They've upped that for homes up to $600,000.
"If [future owners] have had a decrease in pay, been furloughed, or experienced a complete job loss, cash will be key for them," says Neals Communities' Vice President of Sales Carlos Puente. "Conserving closing costs will help people, and hopefully we will get [buyers] that way.”
On finished homes that haven't sold, Neals Communities is slashing prices by as much as $30,000. These are for homes that would have sold for between $450,000 and $600,000 if not for the pandemic and ensuing economic crisis.
In Wellington, FL, in Palm Beach County, three builders are offering discounts in the planned, "agrihood" community of Arden, which features trails, a lake with boat launches, and 5-acre working farm. There are currently about 300 homes in the community with plans to go up to about 2,000.
Lennar Corp. and Ryan Homes are offering $7,500 in closing costs on new homes. Kenco is knocking off about $50,000 from completed homes that run between $600,000 and about $1 million.
"A lot of people make it a hobby to visit our models for renovating or redecorating ideas," says Lorna Swartz, Kenco's director of sales at Arden. "Those people are gone. Those who are still here are ones who are actually interested in buying a home."
Lennar is offering an additional $5,000 to $10,000 off the selling price of its homes. And its mortgage company is also offering mortgages with interest rates of just 2.7% on 30-year fixed-rate loans for select homes through May. The 30-year fixed-rate mortgage recently dropped to a record low of 3.26% for the week ending May 7, according to Freddie Mac.
"It’s a buyer’s opportunity to get a great price," says Susan Moguel, Arden’s marketing director.
Buyers can also get deals on custom homes
While deals on newly constructed homes abound, buyers can also get deeply discounted lots where they can have their dream homes built.
In one development, Lanvale Forest in Leland, NC, outside of Wilmington, McKee Homes is offering a 50% discount on lots, even premium ones: those on corners, in cul-de-sacs, or bordering green spaces. They range from around $2,000 to $10,000. This is the first time the company has offered these incentives in the neighborhood.
“This is a new community incentive we are doing for a brief period of time to help stimulate additional community traffic and urgency,” says Patty Sloan, director of sales and marketing at McKee Homes.
Buyers can use a $5,000 to $6,000 credit for the builder’s design studio to buy flooring, blinds, appliances, kitchen cabinets, and backsplashes. McKee Homes has offered the closing cost credit in the past depending on the market conditions. The company is also letting buyers make payments on options like kitchen cabinets. Now they have to put only 50% down instead of the full amount.
Sloan expects these offers to continue through the second quarter as social distancing continues.
“We’re trying to be as flexible as we can,” she says. "Nothing like getting the rug yanked out from underneath you to make you be more agile."