Homebuilders Slash Prices and Offer Incentives Amid Rising Inventory
Homebuilders are facing a significant challenge with a growing backlog of unsold homes, leading many to slash prices and offer enticing incentives to attract buyers. With the number of unsold homes at its highest since the Great Recession, prospective buyers now have a unique opportunity to secure deals—if they’re in the right areas.
As of February, builders had completed approximately 119,000 homes that had yet to find buyers. To address the surplus inventory, builders are offering incentives like mortgage rate buydowns, closing cost credits, and allowances for home upgrades. In some cases, builders are cutting prices significantly, a move they typically avoid as it can upset buyers who purchased homes at higher prices.
Generally, large builders aim to sell homes before finishing construction. However, they often build some properties “on spec,” or without a specific buyer lined up. These “move-in ready” homes, or “inventory homes,” help builders maintain financial flexibility, particularly in uncertain times, by attracting buyers who need to move quickly.
Since early 2022, inventory levels have been steadily increasing, after builders who rushed to meet pandemic-driven demand were confronted with higher mortgage rates and worsening affordability that kept many buyers on the sidelines. While the shift in market dynamics has created favorable conditions for buyers, experts warn that these conditions may not last. Many builders are now slowing down construction to address the current inventory glut.
“We fell pretty far in terms of prices,” said Scott Turner, owner of Riverside Homes, a spec builder in Austin, Texas. Turner estimates that home prices in urban areas of the city dropped 30% from their peak to their lowest point. “That’s left builders with inventory that’s very difficult to sell. What that does, obviously, is have a chilling effect on new starts.”
The current surplus of unsold homes is giving buyers an upper hand in negotiations, but it remains to be seen how long this trend will last as builders adjust their strategies to move through their inventory.
