On the House : Builders Dangle Bonuses to Make Buyers Out of Browsers
Like a drill sergeant barking out roll call, Yvette Hawkins rattles off the bonus items that a developer threw in when she and her husband bought their new Long Beach condominium:
A washer and dryer worth about $700, $600 vertical blinds, $3,000 ceramic floor tiling instead of linoleum and $1,500 mirrored doors on the closets. All this, plus $20,000 off the builder’s asking price and a loan with a low interest rate.
“With the price discount and all the free bonuses, we couldn’t afford not to buy this place,” said Hawkins, an electronics company department manager who recently bought the two-bedroom condo with her husband, Donnell.
The Hawkinses are no isolated example. Across California, home builders are tempting would-be buyers with everything from free appliances and drapes to cash rebates and government-backed loans. With home prices already slashed and interest rates below 7%, these incentives are the latest way in which developers are trying to turn browsers into buyers.
“Builders have already cut their prices down to the bone, so now they’re looking for other ways to motivate people to buy,” said Steve LaTerra, real estate consultant for Meyers Group, a the Los Angeles-based research firm.
So far, the incentives seem to be helping. After a three-year slump, new-home sales statewide have risen for the last seven months, according to the La Jolla-based research firm Dataquick Information Systems.
Of course, LaTerra adds, consumers who are worried about losing their jobs usually cannot be persuaded to purchase a house simply because a developer will throw in a kitchen full of free appliances.
But incentives can make the difference for consumers who are confident about their jobs but have been straddling the home-buying fence.
Robert Bradley, for example, had spent nearly six months looking to buy his first home in the Antelope Valley. After narrowing his search to three neighborhoods where home prices start at about $120,000, he chose a house where the developer agreed to provide a free landscaping package that includes grass and drought-resistant plants.
“The houses were all pretty much the same, so the free landscaping helped me make up my mind,” said Bradley, a 26-year-old plumber who had to borrow part of his $15,000 down payment from his parents. “I couldn’t afford to pay a few thousand bucks extra for a yard, and I didn’t want to throw my back out putting it in myself.”
Other builders are touting more generous packages with even greater flexibility. Costa Mesa-based Warmington Homes is offering as much as $10,000 in incentives at most of its 10 Southern California developments. The money can be used to upgrade flooring, build a pool or reduce the amount of out-of-pocket cash the buyer needs to close the deal.
“Every buyer is different, so we let them mix and match our incentives to fit their needs,” said Jennifer Jayne, a Warmington spokeswoman.
Developers have cheered the prolonged drop in mortgage rates, in part because they no longer need to pay for costly financing packages that provided buyers with subsidized interest rates.
Instead, they’re touting Federal Housing Administration loans that allow buyers to borrow as much as $151,725 to obtain a home with a down payment of about 5%.
“Interest rates aren’t too important to buyers today because they’re so low, but it’s still hard for some people to come up with a down payment,” said Dennis Gage, president of Irvine-based Concorde Development.
Gage said he’s no longer offering subsidized rates, but advertises the FHA’s low-down-payment program and will pay up to $5,000 in closing costs for a buyer who’s willing to finalize a deal at his Huntington Beach townhome project within 30 days.
The size of the concessions depends largely on where the tracts are located and the type of homes for sale, consultant LaTerra said.
Builders of low-priced, single-family houses in Palmdale are offering only minor givebacks--or none at all--because their profit margins are already low and business is relatively brisk, he said.
But builders of more expensive tracts in Orange County are offering concessions worth more than $20,000 to sell their slow-moving homes, as are some developers who are competing in the glutted market for new condominiums on Los Angeles’ Westside and other coastal communities.
Sales in the state have risen steadily since February--including a surprising 24% jump in August--and analysts attribute much of the upswing to the deep concessions that developers are willing to make.
“There’s no question that all the discounts and special incentives have played a big role in the sales increase,” said John Karevoll, the analyst who compiles Dataquick’s monthly report.
But no one knows exactly how long the incentive deals will last.
Karevoll and some other analysts say many builders will continue to offer generous packages for several months. They note that sales typically slow as the winter holidays approach, so developers will have to keep making concessions if they want to stay busy.
But others say that many of the incentive programs could end soon, in part because the number of new homes for sale has been steadily dropping and few new projects are coming on line to replace them. Meyers Group researchers say the numbers are down from year-ago levels in nearly every Southern California market--from 8% in Los Angeles County to 25% in Riverside.
“You’ll probably see a lot of these incentives disappear as inventory keeps dropping,” LaTerra said. With fewer new homes, competition drops among builders, he said, which reduces the need to offer concessions to buyers.
Home Sales Rising Slowly
Sales of new homes in California have risen steadily since February, but remain well below their peak in 1989. August, 1993: 6,805 Source: Dataquick Information Systems
