Builder Incentives Drive Demand in the New-Home Market

Spiking interest rates are chipping away at buyer demand and deterring would-be home sellers from relocating and refinancing, but despite mounting affordability obstacles in the market for existing for-sale homes, the new-home market is booming. That’s because along with a decline in existing inventory forcing buyers to consider new construction, builders are rolling out enticing incentives, including mortgage rate buydowns, Fortune reports.

In a normal market, total builder incentives as a percentage of sales price would be around 1% to 2%, but the current average incentive as a percentage of sales price is roughly 4%—a considerable bargain for buyers who may otherwise be unable to afford to buy a home.

Maybe it’s not a $1,000,000 home; maybe it’s a $600,000 home. If you’re getting a 4% incentive on that sales price, you’re saving $16,000 in some shape or form (4.2% is the national average total incentive as a percentage of sales price, per John Burns’ data). That figure varies across regions and markets; it’s highest in the Southwest, which includes Nevada, Arizona, Utah, Colorado, and New Mexico, at 6.6%. So on a $400,000 home in the Southwest, you’re looking at $26,400 worth of incentives.

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