The residential real estate market in the last year or two has been rather trying for new home builders in just about all regions of the country. Some areas have weathered the storm a little better than others, but overall the market is in a slump. Even though they have dutifully cut back on the supply, demand for their product has languished below the supply level and thus led to the weakened state they're in now. Let's look at two notable developments associated with this shift.
In 2006 the 100 largest builders managed to increase their market share to 44%, from 37% in 2005. This despite the fact that sales for the entire market was down by 231,000 units from the previous year. This is what happened with the top 100. The elite of them, the top 10, fared even better. That revered segment increased its share from 21% up to 25.7%, as reported by Builder, an industry journal. Which translates to slightly more than one house from every four sold. Not bad. Consolidation is clearly under way.
By the way, the top three builders based on closed sales were D.R. Horton, Lennar Corp. and Pulte Homes.
Secondly, the incentives to move inventory are very much alive and getting more creative. Since people hardly camp outside the sales office doors any more, something has to be done to stir their interest. A National Association of Home Builders, or NAHB, survey reports that about half of its members have reduced prices by the average amount of 7% to do that. On the other hand, roughly 75% are using non-price inducements, like free options and upgrades and buying down the mortgage interest rate. These are the typical ones.
One builder in Georgia has put together a more exotic package. If a prospect has a house to sell before he's able to buy a new one, it has arranged to take care of the home loan payments up to a year. Now there's an incentive for you. That'll ease up the buyer's concern about two mortgage payments. Another company gives the prospect the use of a resale team that helps with painting, plumbing, gardening and handyman issues to spruce up the current home. The final touches are then applied by a stager. I like the creativity here.