14 West Hawaii Real Estate | January 18, 2019
As the housing market slows, builders are offering buyer discounts
As the housing market has
downshifted, more builders
are offering sweeteners to
close the deal.
Companies large and small are
paying closing costs, buying down
mortgage rates and trimming square
footage to offer a cheaper abode.
Some are countering the high cost
of a mortgage with a more direct
method — outright lowering prices
on newly built homes.
“We are really working a little bit
harder … to get people in the door
and to get people excited,” said Mark
Mullin, a real estate agent selling
several new projects in the
Los Angeles area.
At the Gallery, a
project in the Valley Village
neighborhood of Los
Angeles, a builder even
offered to pay the lease on a
Mini Cooper car if potential
buyers agreed to go into
escrow on a home.
“These are things they
were not having to do a
year ago,” said Mullin, who’s
not working with the Valley
Village builder.
Nationwide surveys
indicate concessions are
still minor compared to last
decade’s downturn, and a
recent pullback in mortgage
rates could put some heat
back into the market. But
there has been a decided
shift in favor of the buyer.
A John Burns Real
Estate Consulting survey
found that in December, 23
percent of builders lowered
net prices, which would
include list price reductions,
as well as incentives such as
money toward an upgraded
wood floor that consumers
previously would’ve had to
buy. A year earlier, only 4
percent dropped prices.
In November, 27 percent
of builders were cutting
prices. That’s still lower than
just after the financial crisis;
in 2010, concessions were as
high as 43 percent.
The housing market slowdown has
been particularly pronounced in highcost
markets like California, where the
state’s Realtor association says only 27
percent of households can reasonably
afford the median priced single-family
house. Sales of all homes dropped 12.5
percent in the three months ended
November, from the same time a year
earlier. Prices, which had been rising
steadily, slowed considerably.
Sales of newly built homes in
Southern California dropped just 2.5
percent in the three months ended in
November, according to CoreLogic.
But new-home data can mask a weak
market because a buyer often signs
a contract before the home is built,
delaying the time the sale shows up
in records tracked by CoreLogic.
Rick Palacios, research director
with the John Burns consultancy, said
builders prefer to offer deals such
as money for upgraded appliances
before cutting prices outright, because
they don’t want people who signed
contracts at a higher price to back out.
A separate survey from the National
Assn. of Home Builders found the
median price cut was 4 percent — a
level the group’s chief economist
called “measurable, but minor.”
Several months ago, Newport
Beach-based Planet Home Living
started marketing an eight-home,
small-lot community near the North
Hollywood arts district. It started the
cheapest unit at the Palmea project at
$809,000, but “we weren’t getting the
(desired) movement,” Chief Executive
Michael Marini said.
So in November he cut prices on
the townhome-like units by $10,000
and installed upgraded floors that
previously would’ve cost buyers an
extra $20,000.
On Sunday, Planet Home Living
put its strategy to the test when it
held an open house. It was nearly an
hour before the first potential buyers
showed up and left uninterested.
A short time later, Dominique
Worden and her fiance, Shawn,
toured the three-story model.
The couple rent in Sherman
Oaks and can’t afford a house they’d
like there, but they’d like to stay in
the Valley. They may not end up at
Palmea, but Worden, a producer in
the entertainment industry, said it’s
“technically in our range.” She had
been eyeing the project and Marini’s
price drop got her in the door.
“It’s why we came,” she said.
Real estate agent Mullin, who is
working with Planet Home, said that
by day’s end six groups came through.
Potential buyers said they liked the
homes, he said, but no one’s put in
an offer. Marini said he doesn’t expect
to drop prices further and thinks the
reduction will be enough to juice
demand for the remaining homes.
A number of major builders are
reflecting the sales slowdown in their
quarterly earnings reports.
KB Home, a Los Angeles
company that has a major presence in
California’s more affordable markets,
said that in its fourth quarter ended
Nov. 30, consumers ordered 2.9
homes each month per community,
compared to 3.4 a year earlier.
In the three months ended
Oct. 31, Pennsylvania-based luxury
home builder Toll Bros. saw signed
contracts in California fall by nearly
half, from 10.4 per community during
the quarter to 5.8. California saw the
largest drop-off of its markets.
John Mulville, the Southern
California regional director for
research firm Metrostudy, said there’s
more fear among companies that
focus on pricier homes. Even in good
times, there are few people who can
afford a house above $1.5 million.
Some have even used the “p-word”
— panic — Mulville said.
To stave off jitters, Mulville
said builders
are “handholding”
clients
through the
home-building
process and
offering more
concessions if
they threaten to
cancel.
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