Despite sky-high mortgage rates and sales prices, there is some good news for prospective homebuyers. Homes are taking longer to sell, putting more negotiating power in the hands of buyers. In May 2022, the average home sat on the market for 31 days, increasing steadily in the following months and reaching an average of 56 days in November.
With homes sitting on the market for longer, buyers can increasingly secure a better deal at closing. Most notably, existing home sales prices have fallen five months straight from July to November, despite new home sales prices rising during the same period. On top of falling prices (for existing homes), buyers are increasingly able to secure additional incentives to sweeten their deals.
For example, new data from the National Association of Homebuilders (NAHB) found that 62% of homebuilders offered incentives to buyers in December. The incentives included mortgage rate buydowns, paying mortgage points, and reducing prices. However, only a minority of builders cut sales prices to entice buyers to purchase a home.
What Incentives Can Buyers Expect?
Existing home sales prices fell over 10% between June and November, but new home prices have increased during that time. Therefore, buyers in the market for a new home are less likely to secure a price decrease than those searching for a used home. Developers do not feel incentivized to offer lower sales prices due to high construction and labor costs.
“With construction costs up more than 30% since inflation began to take off at the beginning of the year, builders have little room to cut prices. Only 35% of builders reduced homes prices in December, edging down from 36% in November. The average price reduction was 8%, up from 5% or 6% earlier in the year”, according to NAHB Chairman Jerry Konter.
During a call with investors, Ryan Marshall, president, and CEO of PulteGroup, said that longer-term mortgage rate locks or mortgage rate buy-downs make up most of the incentives that buyers currently receive. The average 30-year fixed-rate mortgage is 6.27% as of December 22.
Faith Floyd, a real estate agent, told Forbes that some builders are now offering to buy down a buyer’s mortgage rate by 1.5 percentage points. With rates as high as they are, buyers can benefit from such a substantial mortgage rate buy-down.
For example, monthly payments for a 30-year, $400,000 mortgage at a 6.27% interest rate would be $3,605 a month, according to RealtyHop’s mortgage calculator. If a buyer’s rate fell just 1.5% to 5.02%, the monthly payment would be $3,289, resulting in savings of $316 a month or $3,792 over a year.
Forbes also reported on the emergence of other incentives, such as lot premiums, cash to cover closing costs or household items like a refrigerator or blinds. Prospective buyers should speak with their agents to see what, if any, incentives they could receive when purchasing a home.