The NAHB/Wells Fargo Housing Market Index survey conducted in May 2020 reveals that 48% of single-family builders are not using incentives to bolster sales and/or limit cancellations. This of course implies that slightly more than half, 52%, are using some kind of incentive to achieve that objective.
What specific incentives are they using? Figure 1 shows the complete list, but the three most likely are:
- Options or upgrades at no or reduced cost (19% of builders report using)
- Payment of closing costs or fees (19%)
- Price discounts/Margin reductions (18%)
Importantly, builders who are using incentives report that paying for closing costs/fees is the most effective strategy, with 27% rating it ‘very effective’ and 56% ‘somewhat effective.’
Figure 1. Incentives Currently Being Used to Bolster Sales/Limit Cancellations
(Percent of respondents)
Historical context for the current findings is important in order to understand prior use of incentives. As Figure 2 shows, the use of incentives was much more widespread during the last housing recession, with 73% and 71% of builders, respectively, reporting their use in May 2007 and March 2008. By April of 2019, the share had fallen to 64%. In May 2020, in the midst of the COVID-19 crisis, ‘only’ 52% of builders were offering buyers any kind of incentive. This is essentially the same share of builders providing incentives as back in April of 2003.
Figure 2. Share of Builders Offering Some Type of Incentive to
Bolster Sales/Limit Cancellations – History
(Percent of Respondents)