Are Builders Still Offering Buy-Downs?

Question

I've come across a few builders in the Phoenix area who are still offering 2-1 buy-downs because they are sitting on inventory. I'm wondering if investors/agents are seeing this in other markets as rates come down. Thanks for your input in advance!

Brooke Dyer · Answer

I'm located in Northeast Georgia, and we're currently seeing a trend where specific incentives are being directed more towards covering closing costs rather than rate buydowns.

Jason Wray · Answer

Jana,

Have you had a chance to look at a 2-1 or 3-1 buy down?  Reason I ask is when you look at the actual final rate its almost not worth doing the 2-1 or 3-1 buydown since the rate is higher than taking a normal rate.  You can usually also benefit more by simply using the seller or builder credit to do a simple "Rate buydown".

The first rate on the buydown is a "teaser" rate that only last for a short time 1 year for example but a true rate buy down is for the entire term.  I would also be careful of builders right now "Sitting" on inventory.  They tend to start doing "fire sales" which means dropping prices which causes all of the homes they closed on the previous 12 months or more to lose value based on new discounted comparable sales.

That is why you see builder always offering crazy "Builder credits" which in most cases are "ghost" funds.  They set the market price by buying several homes or starting the pre-sales and then if they run into inventory bulk.  They then cut sales and that lowers previous home sales by new lower sold comps.

This is not in all states but it does happen a lot in states that are not "Amenity" states.  Typically where the builder goes into a smaller town or area build a small phase and then moves out to another county or town leaving not many new builds in that area to offer new future construction home sales.