In an attempt to attract buyers in an increasingly unaffordable housing market, builders are offering significant mortgage incentives, yet they’re finding few takers. Despite these efforts, potential homebuyers remain on the sidelines due to market uncertainty.
Countrywide Homes, for instance, is offering three-year mortgage rates at just 2.34 percent—less than half the standard market rate. “We have inventory that needs to be moved,” said Richard Mariani, sales and marketing manager for CountryWide Homes. “We’re essentially buying down the rate from the lender. And it helps. You get a lot of inquiries.”
However, even with these enticing offers, Mariani admits there have been no takers so far. “Purchasers are looking to negotiate in different ways, but most have their own lender already. If they want a better price, we offer a discount rather than the lower rate. I haven’t sold one with a mortgage yet,” he explained.
One challenge is that these mortgage incentives often require buyers to put down a larger down payment. For example, with a $500,000 home and a five percent down payment, a $30,000 builder interest rate incentive reduces the lending value to $470,000. Lenders will then only finance up to 95 percent of that value, requiring the buyer to come up with a larger down payment.
Another factor deterring buyers is the strict mortgage qualifying rules. Even if a buyer secures the 2.34 percent rate, they must still qualify at the bank regulator’s minimum rate of 5.25 percent.
Moreover, some builders impose restrictions on the mortgage size that the promotional rate applies to. For instance, Countrywide’s maximum mortgage under the promo is $1 million, even though many of their homes are priced above $2 million.
Looking ahead, Mariani predicts that these incentives may disappear once interest rates drop enough to bring more buyers back into the market. “It could take us two to three years before we get back to a hot market,” he said, though he remains optimistic that a rate drop could spur activity sooner. “The shrewd buyer who’s been on the sideline is just watching and waiting.”
In addition, the return of 30-year insured amortizations for first-time buyers putting down less than 20 percent on new construction homes is another government effort to spur the market. However, outdated default insurance rules limiting coverage to homes priced at $999,999 or less mean that this incentive might not significantly impact single-family home construction in larger markets.
Despite these challenges, builders and buyers alike are closely watching the market, hoping for conditions to improve in the near future.
Robert McLister is a mortgage strategist, interest rate analyst, and editor of MortgageLogic.news. Follow him on X at @RobMcLister.