Sellers offer cold, hard cash to get homes off the market
Published: March 03. 2008 4:00AM PST
Central Oregon homes sales are coming off of one of their worst winters in a decade, and the tenor of the industry’s sales incentives is changing.
Gone are the offers of free cars and Pottery Barn gift certificates.
In their place: cold, hard cash.
At Renaissance Homes, President Randy Sebastian is offering $12,000 to $14,000 to buy down the interest rates on homebuyers’ loans in his Bend subdivisions. At last week’s level, that amounted to an offer of 4.65 percent interest for the first 10 years — almost three-quarters of a percent below similar loans in the open market.
Across town in northeast Bend’s Lava Ridges subdivision, builder Oikos Homes is offering to make the first six months of mortgage payments for buyers who will purchase one of its last seven unsold homes, said Norma DuBois, a Coldwell Banker broker.
And up the road in Redmond, Hayden Homes is offering to pay the first year’s homeowners’ dues — about $1,200 — for buyers in its lower-priced subdivision, The Village, Hayden Homes President Dennis Murphy said.
It’s all about inventory reduction and, so far, price cuts have not done the trick, Sebastian said.
Renaissance has shaved anywhere from 11 percent to 20 percent off the list prices of its unsold homes, cutting anywhere from $50,000 to $150,000 per home in south Bend’s Renaissance Ridge and west Bend’s Shevlin Park, Sebastian said.
That helped to shrink the Lake Oswego-based builder’s local inventory from the mid-30s of early last year to 23 last week, Sebastian said, but with sales in the general market still slow, it’s concentrating its incentive packages even more aggressively on buyers’ pocketbooks.
Last year, Renaissance tried to entice people to the closing table with a February giveaway of a free Mercedes Smart Car and a summer giveaway of Pottery Barn gift certificates.
“The cars, the Pottery Barn, those were kind of on the cusp of the market slowdown,” Sebastian said Friday. “Now the incentives are a little more about the home and it’s a little more serious. People are wanting to make the home more affordable … and homes in Bend have become much more affordable.”
Sales slump
Burdened by a nationwide tightening in the credit markets and a vicious sales slowdown in much of California — one of Central Oregon’s primary feeder markets — sales statistics show that Central Oregon’s residential real estate market has had a tough winter.
Housing unit sales in Central Oregon’s three markets — Deschutes, Jefferson and Crook counties — averaged 205 units per month through 2007, according to the Central Oregon Business Index, a University of Oregon economic monitoring project conducted in partnership with The Bulletin. That was a pace not seen since 1997, said Tim Duy, a University of Oregon adjunct assistant economics professor.
In Bend, the Central Oregon Multiple Listing Service had logged fewer than 50 closed sales of homes on urban lots by the last week in February, according to data tracked by Bratton Appraisal Group’s Mike Caba, making it the slowest February for closed deals in at least 10 years.
Deschutes County building permits rose from 98 in the third quarter to 119 in the fourth quarter, but they remain at 10-year lows, according to the business index.
After a slow winter, buyer interest seemed to pick up a bit as the snow melted last month, said Laura Wahlberg, sales and marketing administrator for Renaissance. The company put 24 homes under contract statewide during its mid-February “Sweetheart’s Sale,” Wahlberg said. Three or four of those deals were in Bend.
Traffic has picked up noticeably in the region’s sales offices and open houses, DuBois said, as buyers sense that prices have moved down and sellers’ incentives to make deals have risen.
It’s difficult to say yet whether the pace of buying has accelerated significantly, since deals that go under contract this month typically won’t show up in the MLS’s sales statistics until the deals formally close in four to eight weeks, DuBois said.
Most builders have cut their prices since last spring, she said.
Private sellers also seem to be getting the idea that 2006 asking prices aren’t going to move a house in 2008, although buyers, in aggregate, are still looking for more, DuBois said. Offers are typically coming in about 5 percent to 6 percent below the asking price, she said. In a typical market, the difference is generally about 2 percent, she added.
A year ago, though, the gap between list price and offer was much higher, if offers came in at all, she said.
“We’re starting to see people come in with prices that are more in line with where the market is,” DuBois said Friday. “We’re not seeing sellers being anywhere near as unrealistic as they were before.”
Incentives
Why offer incentives instead of just lowering the price?
For builders, part of it is self-interest, DuBois said. If they lower the bar on pricing today, it’ll bring down the “comparable sale” values for future homes they try to sell in the same subdivision.
Beyond that, though, incentives can solve problems for potential buyers that simple price drops cannot, DuBois and Sebastian noted. The difference has to do with the mathematics behind a mortgage.
For example: On a $450,000 a home with 20 percent down, cutting the price by $12,000 would reduce a buyer’s monthly payments by about $55 a month in the early years of a 5.43 percent adjustable rate loan. But using the same $12,000 to buy the initial interest rate down to 4.65 percent would cut $170 a month out of the payment — potentially making it easier for buyers to qualify in the early years, DuBois said, and giving them a chance to boost their incomes and build equity before the rates adjust upward.
“As far as the builder goes, it’s a good thing to do because you are doing something for the client that they really can’t do later,” Sebastian said. “They can’t really go back in and buy their rate down later, after they’re in the house. … So we take care of that up front.”
Private sellers can offer similar incentives, DuBois said. Depending on the situation, she recommends that sellers use part of their equity to finance “3-2-1 buydowns” — loans that charge payments based on interest rates that are 3 percentage points below market in the first year, 2 points under in the second and 1 point in the third — rather than dropping their prices by a similar amount.
That, again, can help a potential buyer qualify, DuBois said.
And incentives like Oikos’, in which the seller offers to pay the entire payment for some set period of time, can help move houses to people coming from tough markets like California, where they may be worried about their ability to sell their former homes after they’ve bought into a new Central Oregon deal.
Where are incentives likely to go as the year moves on?
It’s all about the inventory, Sebastian said. Empty houses are expensive to build and expensive to hold. Prices are unlikely to drop much further on new homes, he said, because they are cutting close to costs as it is — builders will just stop building if the downward march continues, rather than lose money putting up new units. But if the current unsold inventory melts away over the course of the year, the incentives will diminish or disappear and prices will at least stabilize, he said.
“I think they just want to unload as much inventory as they can, in whatever way they can,” DuBois said.
David Fisher can be reached at 617-7862 or at dfisher@bendbulletin.com.
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