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Home Builders in Sun Belt Slashing Prices in Face of Rising Inflation and Interest Rates


Redfin's Glenn Kelman, Sunbelt

Redfin’s Glenn Kelman (iStock)

As the U.S. grapples with rising inflation, the rapid uptick in interest rates has compelled homebuilders in the Sun Belt to make a bold move: slash prices.

The combination of rising mortgage rates, low housing inventory and inflation have curbed demand in Sun Belt states such as Texas to the extent that some builders are now finding ways to navigate the housing market by ramping up the share of new construction offerings with price cuts, Bloomberg News reported.

In Austin, new-construction offerings with price cuts have quadrupled from a year earlier, according to Redfin Corp. Home builders that were once artificially limiting their sales by not taking new orders are now seeing greater inventory to work with.

“We are in a different place — the builder can no longer name a price and say, ‘pay it or move along,’” said Nicole Freer, an agent in Houston, told the outlet. She has seen similar price changes in the city, and has even slashed the prices for her own listings by $2,000 to $20,000.

Home builders typically consider price cuts a last resort when demand falls, first trying to boost sales with additional amenities – granite countertops or subzero appliances – to avoid angering customers who bought earlier at higher prices.

According to Ali Wolf, chief economist at real estate data group Zonda, the market is starting to change. Her company primarily tracks new construction, and began hearing of price cuts toward the end of May and into June.

“The builders that are cutting prices are also those that raised prices the most over the past six to 12 months,” she said.
The cuts have come from a mix of small, private builders as well as larger public ones, according to the publication. D.R. Horton, Meritage Homes and Lennar, which have listings in Florida, Texas and Arizona, have made their cuts public, showing just how many builders are trending toward offering a lower rate for new homes.

Jim Zeumer, vice president of investor relations at Pulte, an Atlanta-based builder, said the price reductions listed on its website were typical incentives used to sell spec houses, or houses built without a buyer that will be completed at a later date.

“We will typically have one or two finished specs in a community but use incentives to manage inventory levels over the life of a community,” he said.

[Bloomberg] — James Bell

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