Metro Detroit

Market Update: Builder Incentives To Backlog

December 06, 2022

This is a new one for us – incentives to Buyers in backlog.

Yeah, you read that right.

As interest rates skyrocketed and consumers under contract with builders, many without interest rate locks, watched their future monthly mortgage payment rise to uncomfortable levels, builders were forced to offer incentives to many of their buyers to keep them from canceling.

For many consumers, the thought of walking away from a $40K or $50K deposit was painful, but not as painful as paying a 30-year mortgage with a payment that might’ve doubled or tripled from when they first went under contract.

Even the prospect of re-financing becomes fuzzy when the rates go from 2.5% to 7%; the odds of them dropping back down below 5% in the foreseeable future can mean prolonged payment pain that isn’t worth it.

For builders, this presents a difficult predicament; even if they enforce their contracts and inherit the PR nightmare that would likely follow, the money they would keep still likely won’t make up the difference for the price reductions they would have to offer on the homes they take back, in order to unload them and get them off the books.

Sitting on finished homes doesn’t offer builders the financial windfall one might think lol.

So, as the attached chart from our friends at John Burns Consulting shows, the answer was offering incentives to KEEP people in backlog, typically by offering interest rate buydowns that help to ease the mortgage payment shock enough to keep people under contract and moving forward…

Jeff Bortnick & Lou Bitove, owners of The New Home Experts®, have nearly 40 years of combined experience in real estate, much of that with builders like Pulte & Toll Brothers.  They also provide market research for area builders, developers, and national firms.  If you’re considering a new home, remember: the builders’ rep represents the builder, not you.  Work with the only local agents in Metro Detroit to specialize in new homes, and save money in the process – ask us how!