As mortgage rates surged to a 22-year high last quarter, newly constructed single-family homes accounted for a record 29% of all homes for sale, forcing some builders to lower their prices and dish out steep incentives. The share of new homes finishing construction and entering the market is at its highest level since 2007, leaving home builders with a stockpile of properties that are becoming increasingly hard to sell as interest rates surge beyond 7%, Redfin reports.
While builders are scrambling to offload completed projects, buyers are benefiting from new incentives, and a slowdown in home building throughout the coming year could cause double-digit home prices drops in some homebuying hotspots.
“Homebuilders started scores of projects during the pandemic moving frenzy and are now stuck with a bunch of new houses that are hard to sell because mortgage rates have risen to 7%,” said Faith Floyd, a Redfin real estate agent in Houston. “Builders are giving away everything but the kitchen sink to attract bidders. Many are offering to buy down the buyer’s mortgage rate by 1.5 points, and I’ve seen at least one offer a $10,000 check for closing costs, a $3,000 gift card and a free fridge. This one way builders will dig themselves out of the hole they’re in.”