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During the housing boom, new-home builders were like the hosts with the hottest invitation in town. They could raise prices with every newly opened phase of a development and display a "take it or leave it" attitude toward buyers. Now, amid the downturn, homebuilders are the hosts everyone avoids. In July, new-home sales nationwide were down 10% from the previous year, and the National Association of Home Builders expects them to continue falling until the second half of 2008.
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The decline in home starts (down 25% nationwide for the year ended in July) and permits for future projects (down by almost one-third) reflect builders' much-reduced expectations. In many formerly hot markets, they've pulled back even more. In Orlando, Fla., and in Riverside-San Bernardino, Cal., east of Los Angeles, permits are down nearly 50%. In Las Vegas and the Twin Cities, they've decreased nearly 40%. The more inventory on the builders' books, the greater their carrying costs and the more motivated they are to cut a good deal. That spells opportunity for new-home buyers.
You may not have to work too hard to get what you want. In Washington, D.C., agent John Sullivan says developers are "caving like crazy." He remembers one deal this past summer: "I might be exaggerating to say that I 'negotiated' a price cut," he says, "because as soon as we expressed interest in the condo, the sales rep offered to take $30,000 off the price." The builder also threw in a two-year lease on a second parking space.
A bargain in Orlando
Gita and Rahul Sukthankar, both 37, relocated to Orlando from Pittsburgh in August. Gita had accepted an assistant professorship in computer science with the University of Central Florida, and Rahul planned to telecommute for his employer, Intel Research. They looked forward to buying a new home after years of renting. On their first trip to Orlando with agent Eve Alexander, they found a home under construction by Morrison Homes that would be completed in August. The location was right, and the community offered lake views, mature trees and a model with a floor plan they liked.
The single-family home, with four bedrooms, three and a half baths and a two-car garage, was listed at $422,432. Because the home was a "quick move-in" property, meaning the builder was about to close out sales in the development, the builder advertised a $10,000 price reduction. Alexander thought the buyers could do better. "I was hard-nosed in negotiations because I felt we could squeeze the builder," she says. The couple were able to buy the home for $355,332 -- a price break of almost $67,000.
The Sukthankars comparison-shopped the builder's financing -- a 30-year fixed rate of 5.875% -- and found it to be competitive. The builder offered an additional incentive with its mortgage: 6% of the purchase price for closing costs. At Alexander's request, the builder also agreed to screen in the porch -- a necessity in buggy Florida. Plus, the builder required only a $500 deposit, from which the couple could have easily walked away if they changed their minds.
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