Editor’s Note: Each Friday, WRAL TechWire takes a deep dive into the Triangle’s real estate markets.  Now might be the best time to buy a house in the Triangle, WRAL TechWire reported last week.  This week, we dive into how and why a buyer might consider a new construction home in the Triangle—because builders are now providing great financial incentives.  

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DURHAM – For those considering buying a home in the Triangle, now could be a great time, especially for buyers looking to make a deal on a new construction home rather than purchase an existing one that’s listed on the open market.

That’s because builders, especially publicly-traded homebuilding companies, might be looking to entice homebuyers by offering expanded financial incentives to bring buyers to the closing table.

“There are a couple of key figures that have come out that are important for people to know,” said Gian Hasbrock, the founder and president of Wowism, a firm specializing in residential new construction sales and marketing education, training, and consulting, in an interview with WRAL TechWire this week. “Especially those interested in getting into the real estate market at what is clearly a very transitional time.”

Hasbrock, who is also a past president of the Home Builders Association of Durham, Orange and Chatham Counties, noted that many current homeowners who might otherwise consider moving to a new home are now unwilling to do so due to the recent increases in mortgage interest rates as the Federal Reserve moved to raise interest rates to tamp down inflation.

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What’s happening

Folks are staying put because they’re unwilling to buy a home using a mortgage that would have an interest rate much higher than their current mortgage rate, said Hasbrock.  That means that the available inventory of homes for sale continues to remain depressed in the current housing market, he noted.

And while the reasons that inventory remains low in the region are different than a year ago, when inventory was at record lows, the fact is that would-be home buyers still face a market that could at times feel restrictive and limited.

That’s leading some homebuyers, including first-time homebuyers, to consider new construction homes.

“The number of people who are contemplating making a purchase, and are now looking at a new construction home,” said Hasbrock, “is up about 28% from where it was just a couple of months ago.”

Data provided by the National Association of Homebuilders shows that homebuyer sentiment toward new construction homes continues to rebound, with an increase from 21% in the second quarter of the year to 27% in third quarter of the year.  That’s an increase of 28.6% quarter-over-quarter.

“For builders, the pressure to meet the market where it is still remains,” said Hasbrock.  Meanwhile, though, the cancellation of real estate contracts has increased this year, WRAL TechWire recently reported.  That includes for new construction homes, said Hasbrock, who told WRAL TechWire that in January it was about 8% of transactions, while recently, that figure is closer to one in four new home contracts.

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What this means for buyers

Builders, particularly publicly-traded building companies are highly incentivized to maintain “a certain level of sales per month per community in order to keep credibility,”

“What we’ve found, in the latest survey from Zonda,” said Hasbrock.  “Is that 25% of builders have reduced base prices, and yet the real estate market continues to remain local.”

Locally, the Raleigh market is ranked second in the nation for pending new home sales, according to Zonda data, seen below.  New home construction is progressing at a torrid pace in the Triangle, too.

“Looking at national figures, particularly from the Triangle, can be illusory,” said Hasbrock.  “Although a number of significant markets like Phoenix and Las Vegas and Seattle have seen their sales per community per month drop, in markets like the Triangle, we’ve actually risen from one year ago.”

That means, locally, there might not be a huge shift in housing prices, particularly for new construction homes.

“Until these public builders cannot make two sales per community per month, I don’t think we’ll see wholesale price reductions,” said Hasbrock, adding that right now, the average number of sales per month for new construction communities is above two.

So what can a savvy customer do in the Triangle’s real estate market?

 

A takeaway for buyers

The key takeaway: It’s important to understand what to ask for and how to ask for it.  Put another way, buyers and their agents can negotiate incentives.

But, said Hasbrock, understand that builders have little incentive to lower the final sales price of a new construction home, especially in a community where there have already been home sales.  It’s not just that builders don’t want to take a loss on the construction of new homes in new communities, it’s that builders are reliant upon providing a home product that delivers strong positive customer sentiment, he noted.

“Builders do not want to betray buyers who might have bought at higher prices,” said Hasbrock.  “Builders are reticent about lowering final sales prices, because it makes their whole marketing plan, which is to create a customer for life, a raving fan, self-destruct, because if I just bought a house for $50,000 more than what you’re currently selling homes for, I will feel terrible about my purchase, and there’s no way I would recommend you.”

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What to ask for

So a smart, savvy buyer can ask for something else, where the builder might have freedom to offer incentives, without lowering the sales price.

“That’s getting financial incentives, like rate buydowns, payments toward closing costs, and those sort of things,” said Hasbrock.  “That’s where you can be most effective in negotiating a deal.”

But, said Hasbrock, in order to receive incentives like that, you may need to agree to use the builder’s preferred vendors for mortgage financing or for closing attorney.

“The fact is that prospective buyers should be aware of, and have their real estate agents research, is whether the builder has already dropped base prices,” said Hasbrock.  “If they’re in the early stage of negotiation, like a pre-sale, one additional thing they can target is the lot premium.”

Incentives will be more likely to be accepted in communities that have fallen below the two sales per month benchmark, said Hasbrock, but buyers can still work with their agents to negotiate incentives in other communities in the Triangle, as well.

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Editor’s Note: Gian Hasbrock is affiliated as a real estate consultant with Jon Parker Real Estate, based in Durham.  WRAL TechWire reporter Jason Parker also holds an active real estate license in North Carolina and is affiliated with the firm.