As housing market cools off, sellers dangle new incentives
By Aleksandrs Rozens
By Aleksandrs Rozens
NEW YORK — Nearly a year ago, Pete Montero first listed his house in Ann Arbor, Mich., at $379,000.
The 2,600-square-foot home didn't attract buyers, so Montero dropped the price on five occasions by $10,000 each time — he's now asking $329,900 — and he's even considered remodeling the kitchen.
"We really didn't think any individual thing about the house would make it difficult to sell," said Montero, whose four-bedroom home has a finished basement and sits on a cul-de-sac that ensures privacy.
Spring is typically the busiest time of the year for home sales. But with mortgage rates rising and sales slowing, sellers find they have to work harder to get a sale.
In February, a total of 3.03 million previously owned homes were up for sale, a level not seen since 1991, when the tally was 1.91 million, according to the National Association of Realtors.
"Business is tough. The inventory of available properties has increased," said Martin Bouma, an Ann Arbor real estate agent. "You are looking at (the number of) buyers going down, and inventory is going up."
Some incentives offered by sellers include a year's worth of free landscaping or lawn care, free snow removal for a year or a year's worth of alarm service.
That's just from the owners of existing homes. Builders sitting on a mound of inventory have also had to come up with new ways of wooing buyers.
The tempered pace of home sales follows record years of activity — 7.982 million homes sold in 2004, followed by a record 8.35 million in 2005 — that saw bidding wars and a steady escalation of prices.
The first signs of an ebbing in demand appeared last summer and have continued into this year. Applications for home loans are down 20 percent from last year, according to the Mortgage Bankers Association.
"I have seen it transition from a seller's market to a buyer's market," said Bob Moulton, a mortgage broker based in Manhassett, N.Y.
"Buyers are putting in bids but they are not counteroffering."
The process of selling a home, meanwhile, is taking longer, a trend reflected in heightened demand for lengthier rate locks, a guarantee offered by lenders to keep the rate on a mortgage at a set level for a certain period. In recent years, rates were guaranteed for 30 to 45 days because homes could be sold quickly. Now, borrowers ask for 120-day rate locks.
While some homes can be taken off the marketplace by their owners, builders cannot afford to hold on to empty homes. So some have offered their own incentives, such as helping to pay mortgage closing costs or upgrading kitchen appliances.
"This year we're being a little more aggressive from the advertising and incentive standpoint," said Paris Reese, chief financial officer of MDC Corp., a Denver-based builder. While saying that "incentives are an important part of our business," Reese was quick to note that "we're not doing any fire sales."
Dallas-based Centex Corp., meanwhile, has kicked off a series of 12-hour sales in Seattle, Las Vegas, Houston and Denver, among other markets. In Sacramento, Calif., Centex lopped off $100,000 from some multimillion-dollar homes.
Centex likens its sales to a retailer clearing unsold inventory off shelves. A spokesman for the firm, Neil Devory, said the 12-hour sales have "tremendously increased" buyer traffic but he would not disclose exactly how many sales actually resulted from the promotions.
"We had significant numbers of contracts and reservations," Devory said.
At the same time, Toll Brothers' push to get customers across the threshold is a little more subtle, but just as persistent. Kira McCarron, the Horsham, Pa.-based homebuilder's chief marketing officer, said the company relies on print, Internet, and some television and radio advertising.
But, what's going on at the model homes is what's different.
"A message is crafted for each location," said McCarron. "We pick a hypothetical family or a couple we envision this home will be designed for."
For example, a refrigerator magnet in a Toll Brothers home may have a message to a fictitious family member about a relative who must be picked up at a train station, demonstrating that mass transit is nearby. Or a school jersey hung in a bedroom of the model home serves as a reminder of a good school district.
In addition to personal notes and school jerseys, Toll Brothers' marketing involves staging Easter egg hunts and Halloween parades as well as charity events or PTA meetings — another reminder of a neighborhood's school system — within a development.
"We want them to feel emotionally connected to a place," said McCarron.
But aside from special events and upgrades to kitchen appliances, the single factor determining whether a home attracts buyers quite likely will be its price.
"You can have the biggest circus on the street, but it comes down to price and having the right price," said Bouma.