About three out of four builders have been forced by market conditions to offer some kind of incentive to attract nervous customers. "Builders are pulling out all the stops to promote sales," David Seiders, chief economist of the National Association of Home Builders, said at the group's recent convention.
But luckily for some previous buyers, only about half of those have actually cut prices. According to the NAHB's latest body count, the most popular stimuli are free options and upgrades and paying the buyer's closing costs. One or both are offered more frequently than price cuts, which run third on the list.
After that, some builders are offering to absorb buyer-paid points (a point is 1% of the loan amount), interest-rate buy-downs, help with selling the buyer's existing house, trade-in programs and delaying the buyer's house payments for several months. Again, some builders are offering at least one of these inducements, and many are offering a combination of several.
More pertinent to your question, some builders -- but not many -- are offering to match any price reductions that might be put in place subsequent to a former buyer's purchase. And a few are promising to buy back the house if a price cut is enacted sometime down the road. Of the 77% of all builders who are offering incentives, the NAHB was only able to find 4% who are guaranteeing to match price cuts and just 3% who are vowing to buy back the house.
For anyone who finds these come-ons attractive enough to venture back into the market, my advice is to read the fine print. Find out, for example, how long the offers will remain on the table. Three months? Six months? A year? Forever? Obviously, the longer, the better.
For you, the good news is that while the inventory overhang is huge -- the NAHB says there might be as many as 400,000 finished but unsold houses sitting empty nationwide -- the incentives listed above seem to be bringing wanna-be owners out of the dugout and back into the game. Seiders told his members he sees "reassuring signals" that cancellations have slowed and net sales and closing are on "a modest upswing."
Still, if the NAHB's inventory count is correct, that's close to a year's supply of houses that have to be worked off. Five to seven months is normal. So prices are destined to weaken further. Indeed, Seiders is forecasting the first-ever decline in the average price of both new-home and existing-home prices this year.
Fortunately, that's on a national basis. Some markets are in much better shape then others. So my advice to you and others in a similar situation is to hang in there if at all possible until prices start trending up again and reach the point at which you jumped in -- with both feet and without a life preserver.
Q: I am planning to purchase a second home. If I change my condo from my principal residence to my office or place of business, can I treat the mortgage on that property as rent, thus deducting it as business expense? Ranjo.
A: No. Business owners can only deduct rent expenses for properties they do not own. See Internal Revenue Service Publication 535, page 14, column 3: "If you have or will receive equity in or title to the property, the rent is not deductible."
Q: In your answer titled "How to handle taxes on a home you own but let relatives use," you indicated twice that for personal-use, non-rental properties, a taxpayer may deduct mortgage interest and property taxes only for a main home and a second home. Regarding the mortgage interest deduction, this is clearly stated in the regulations and IRS Publication 936. But what is your authority to say that this limitation pertains to the deduction for real estate taxes as well? David de Freudiger. See previous Realty Q&A.
A: Glad you asked, because you caused me to double check with the Internal Revenue Service and it turns out I am mistaken. The mortgage interest deduction is the only one limited to just the main home and second home. Real estate taxes would be deductible on Schedule A for an unlimited number of properties. See IRS Publication 527, page 5, "Not Rented for Profit."
Nationally syndicated columnist Lew Sichelman has been covering the housing market for 35 years. Because of the volume of mail he receives, he cannot answer individual questions, nor can all questions be answered in this space. E-mail lsichelman@aol.com.
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