US homebuilders weigh incentives as mortgage rates rise
Mortgage rate buydowns may not be as hot an incentive in 2024 as mortgage rates remain elevated, homebuilder sentiment climbs, and housing starts decline. Yahoo Finance Housing Reporter Dani Romero details major housing players' decision to offer fewer incentives to buyers, referencing the latest data out from the National Association of Home Builders (NAHB).
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Editor's note: This article was written by Luke Carberry Mogan.
Video Transcript
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- The housing market narrative is shifting compared to last year driving home builders to weigh the option of withdrawing incentives for buyers. Yahoo Finance's very own Dani Romero is here with the details. Dani.
DANI ROMERO: Josh will this be the year that we say sayonara to those aggressive incentives like the mortgage rate buy downs which is when the builder upfronts the cost to lower the rate on the loan. The answer is, we'll see, mortgage rates are rising. So that's really squeezing the hope that a lot of people had that this spring selling season would be the turnaround story for the housing market.
Now the biggest homebuilders, Lennar, DR Horton, they have really signaled that they are not going to pull back on incentives. And that is really their winning shot in this game to gain the market share, which they've already been doing and for some perspective, DR Horton actually offers mortgage rates about one point below market rates.
So that means you could gain a mortgage rate around 5% and that's really attractive in this market. On the other hand KB Home signaled that they will not be pulling back on incentives. But that is also before we had all this inflation data come out. So that also is part of this equation as well.
Bottom line, builders are really looking at each other and trying to see who's going to make the first move.
- Who's going to blink first. Let's talk about housing starts, which we got today, sliding in January, mortgage rates of course ticking higher this week. So how does that fit into the narrative? I mean, we were looking for some relief that doesn't feel like relief necessarily.
DANI ROMERO: Today's housing starts the data that came out really reflects the wintry weather, not necessarily the pullback in builder confidence. Remember builders need good weather to build and that does complicate the story in the winter months. So and for some perspective, the biggest drop in housing starts was actually the regions that were hit by winter storms.
So for example in the Northeast, housing starts were down by 20%, month over month. So that really does give you some perspective that certain regions were really hit by some of the storms. But looking ahead economists are really expecting that single family starts will gain momentum.
And the fact that the new home market is still looking like that, really bright spot in this housing market, especially that these builders will continue to offer these incentives, like those mortgage rate buy downs. I mean, 5% looks really great right now.
- Yes it really does. Thank you so much, Dani. I appreciate it.
