Why the Housing Market’s Best Deals Are for New Construction

12/18/2023 angelica@builder.media

Amidst the persistent upheaval in mortgage rates, builders nationwide are strategically employing mortgage rate buydowns to invigorate home sales. A notable example is Lennar, the Fortune 500-ranked homebuilder at No. 119, currently advertising a fixed mortgage rate of 4.75% in Colorado.

According to Fast Company, builder buydowns are very successful, John Burns, CEO of John Burns Research and Consulting, said during a recent interview on Barron’s Live: “A huge savings, who wouldn’t want that?”

The Barron’s Live episode with Burns, who probably understands the ins and outs of today’s housing market better than anyone, is a must-listen. Keep in mind that it was recorded a few weeks ago when the average 30-year fixed mortgage rate was still above 8%. (As of Thursday, it was at 6.62%).

How Burns summarized the new construction sector: “The homebuilders usually get around 12% to 15% of the [market share] . . . Right now they’re at 30% to 35% of the homes available to sell because there’s so little on the resale market. So if you relocated to Atlanta, you’re going to be looking at a new home because they are a higher share than what’s historically been available. So they’re taking market share. They also, the big ones, tend to own their own mortgage company or have a deal with a large mortgage company. They’ve done so well the past few years, and there has been so much price appreciation, that they can afford to buydown peoples’ mortgage rates. So if you bought that resale home you may be paying an 8% mortgage rate, but if you bought the new home they’ll offer you a 6.5% mortgage rate. That’s a pretty compelling reason to buy a new home.”

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