BluefoxToday blog : January 2009

Home builders have been absorbing severe body blows for a while with their over-priced product and too much supply. Using Las Vegas as an example, the scenario here easily applies to many areas of the country, the troubles really began gathering steam two-three years ago and haven't let up since. That seems like enough time to put together a new strategy to combat the obvious oversupply but they somehow have been slow in doing anything substantial. Besides cutting back production, not enough it seems, and reducing the average size, they are now trying something different; offer cut-rate mortgage financing.

Some of the bigger firms are going from 1% to 1.5% below the current average interest rates for 30-year fixed. For starters, that ought to catch the eye of some prospects. In addition, at least one of them advertises a mortgage insurance option in case of a job loss. The heavy focus has now shifted to the finance side to generate sales that are so hard to come by in this slow economic environment.

Housing hasn't been this disjointed in a long while between the existing home sector and the new one. Still keeping in mind Las Vegas, resales are now doing rather well here in the lower end of the real estate market because foreclosures have pushed prices down hard. New homes can't compete with them at all, so that's why the financial incentives were introduced. But it's doubtful that they'll make much of a difference because the price gap is so wide. And it can get even wider in the coming months if foreclosures keep on piling up, as some experts suggest, and lenders turn around and list them for sale at ever-decreasing prices to get them quickly off their books.

Home builders predictably will remain between the rock and the hard place for now, even after introducing these mortgage finance incentives.