July 29, 2006

First wave of housing price declines not reflected in official numbers as sellers give away free stuff instead


When the builders use incentives, those costs go against their marketing budget lines in the P&L, but median sales price doesn't drop (wink wink NAR). Pools, cars, trips, counter tops, flooring, you name it - it all costs something.

Now mom and pop homesellers are getting into the act too

This is how the bubble ends - not with a bang but with a whimper. But after the incentives, raw price drops will be necessary to clear the dead inventory

Pools, vacations are new lures for homebuyers

On the fence about whether this is the house for you? Maybe a free swimming pool will convince you. Or perhaps a free vacation.

Such is the state of U.S. housing, as home builders pull out all the stops to keep business booming -- a sure sign the once red-hot market has turned in favor of the buyer.

Nearly all measures of housing activity have pointed not just to a slowdown but to a sector that is struggling. Sales are sliding, supply is swelling and price appreciation is abating. Now, home builders are going beyond offering free washers and dryers, refrigerators and microwaves, ponying up more expensive perks and luxury items to lure buyers.

Las Vegas-based Wagner Homes is giving away swimming pools said to be worth $30,000 on some of its projects.

Some incentives -- occasionally in the form of cash via bonuses, refunds or fee waivers -- are worth as much as $100,000, said Larry Murphy, president of SalesTraq, which monitors real-estate trends in the Las Vegas area.

"Swimming pools, gold club memberships, home landscaping ... all of them are being offered," Murphy said. "Home builders lower prices only as a last resort, so prior to that they prefer to give incentives, which are masked within the sales price. They don't want to reduce prices, not only for the peace of mind of having to deal with the homeowners who have already bought but because it would cause problems with appraisals."

Extravagant incentives are most prevalent in states such as Florida, California and Nevada, where home prices had risen the most but are now seeing the sharpest softening, analysts say.

6 comments:

Anonymous said...

a $30,000 pool thrown in for free is a $30,000 discount and should legally be recorded that way

Anonymous said...

Let me see if I have this right:

If you are underwater and the bank agrees to short sell for say 30k below book value of the mortgage, that 30k is considered income by the IRS.

Therefore you would think

If a builder gives a 30k incentive to sell a house then that should lower the book value of the house.

but it doesn't it actually increases the value of the house. The borrower doesnt care at first as he has a pool..

But he also has a house worth 30k less than what it appraised for.

Is this correct?

Anonymous said...

I liked this photo of my house, isn't it something special?

Jip said...

To heck with pools and vacations as bonuses!
Give me pratical things!
Like top of the line kitchen appliances, front loading washer and dryer set for good measure. Those should last a few years....

BubbleShanker said...

I can hear it now, Centex will give me 70% off and a vacation to Cancun, what can you offer me?

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