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Why Builders Will Not Reduce The Sales Price of New Construction

Mon Jul 26, 2010 7:15 am
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New home builders have had a difficult time over the past three years selling new construction. A decade ago builders were making a healthy profit on the upgrades buyers were willing to spend thousands of dollars on over and above the original purchase price of new construction.

In todays new home market few buyers have the cash to spend lavishly on upgrades. Builders are using all sorts of strategies to induce buyers to purchase new construction. New home inventory is reported to be at the lowest level since 1968. There is a reason for this. The number of buyers has been reduced significantly due to the loss of jobs, problems with mortgage financing and the overall economy.

Builders will give incentives to purchase new construction including assistance with closing costs, free upgrades maybe even help with obtaining a lower interest rate. Why will builders not simply reduce the price of the new home?

The answer to this question is obvious but sometimes not to the buyer who is often not thinking of anything but seeing themselves in that new home. Builders are forever looking for the next "base line" to price the next group of homes they will be building. Maintaining assessments at a high level is also important to local taxing authorities.

Revenues are important to finance local schools and run local police, fire etc.. If builders simply reduced the price of new home inventory they would in fact be creating a potential deflationary spiral.

I realize that this thinking may not be accepted by the "expert analysts" in the housing market. The hype that is communicated to the public on programs like CNBC is sometimes almost comical. 

The best point to suggest that "liars cannot figure and figures do not lie" is that sales numbers for June 2010 jumped about 26% while the numbers for May 2010 were revised downard to a low of 267,000.

If you are in the market to purchase new construction of for that matter any home make certain you do your homework. Maybe even tell a builder the price you are willing to pay. It may be interesting to see how that goes.



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