Once upon a time, incentives were the name of the game in the new-home sales business. Want your basement finished? Love the way those granite countertops look in the kitchen? A builder would be more than happy to “throw those in” if it helped convince a wavering buyer to sign on the dotted line. But when the housing market collapsed in 2007, many incentives disappeared. Accurate, low-as-possible pricing was — and continues to be — the industry standard among builders of new homes.
“At one point in the past, builders were offering huge discounts and incentives on listed home prices, but those were discounts off an inflated price,” said Thomas Baum, president of Greenbelt-based Bozzuto Homes. “That’s mostly gone from the market today. Incentives certainly change from time to time in the marketplace, and I would say that now we’re at the point where the industry has gone through right-sizing the pricing of the units to the market.”
One powerful incentive, however, will remain until at least the end of April 2010. It’s not offered by a builder, but by the man himself: Uncle Sam. The federal government’s $8,000 tax credit for first-time homebuyers was extended and expanded by Congress and signed into law by President Obama in November. Builders across the Washington area say it’s been a smashing success.
“We’ve adjusted our pricing to an appropriate place in the market, and we’ve had a very good summer,” said Cynthia Herberg, director of marketing for Bethesda-based Winchester and Camberley Homes. She praises the tax credit for sparking the market, and the numbers back her up. The National Association of Realtors reported that pending homes sales were up 6.1 percent in September, compared with 6.4 percent in August, rising for the eighth straight month. They are up 21.2 percent compared with the trough in September 2008 (the data is based on contracts signed, not closings).
As noted earlier, the new housing bill has broadened the tax credit program, leading to hopes that it will continue to elevate the housing market. Buyers who have owned their current homes at least five years now are eligible, subject to income limits, for tax credits of up to $6,500. First-time homebuyers and people who haven’t owned homes in the previous three years can still get up to $8,000, but the income limits for newbie buyers have been raised. To qualify, first-time buyers have to sign purchase agreements before May 1 and close before July 1.
Builders hail the program, but it’s had an unintended, albeit relatively minor consequence: Traditional incentives have all but disappeared.
“In this environment, incentives are almost irrelevant,” said Tom Avery, vice president of sales and marketing for CarrHomes. “What we’re doing depends on the community. Sometimes it’s a finished basement, sometimes we’ll do stainless steel in the kitchen, but people are very price-sensitive right now. Instead of offering a bunch of incentives, we’re doing everything we can to get the price of the base house as low as possible.”
Compared to last year’s, today’s new-home market is a brave new world; one that may not include many incentives but is immensely attractive for buyers.
“Irrespective of the credit, the first-time homebuyer sees the opportunity, the low interest rate, and knows that can’t last forever,” Baum said. “I think everybody expects the market will be robust again in the future, because land is still scarce and jobs will continue to grow in this area.”
