Home prices skyrocketed this year, rising by nearly 20% year over year in the spring. The median price of a brand-new home rose to about $450,600 in the spring, while the median cost of an existing home in the U.S. was $391,200. This price difference is nearly $60,000, showing the rising cost of new-construction houses compared to resales. And while the market has somewhat cooled as we head into the year’s end, growth rates are still robust. Naturally, aspirations of homeownership have become increasingly unrealistic for many potential buyers; current research shows that between 2019 and 2021, the house price to income ratio rose from 4.7 to 5.4, more than double the recommended ratio of 2.6.
In this environment — one of surging home prices and rising interest rates — what can builders do to make buyers’ dreams of homeownership a reality? Below, we detail tactics that you, as a homebuilder, can employ to make homes more affordable for prospective buyers.
What Can Builders Do to Make Homes More Affordable for Buyers?
When home prices and interest rates surge, there are a variety of tactics builders can employ to make homes more affordable for prospective buyers. Some of these tactics may already be a part of your current strategy, while others might be new methods worth exploring. Intrigued? Let’s dive in.
Provide Mortgage Rate Buy-Downs or Fixed Mortgage Rates
Mortgage rate buy-downs — familiar with this tactic? If it’s been a while, here’s a brief refresher: With this financing technique, the builder typically provides payments to the mortgage-lending institution, typically offsetting the costs of the buy-down by increasing the purchase price of the home.
This arrangement lowers the buyer’s interest rate and monthly payments for a specified duration (usually a couple of years), making the home more affordable up front and, thus, more likely to sell.
While the base price of a home might fit within a buyer’s budget, the cost of upgrades can quickly add up. On average, new homeowners spend 20% to 25% of the base cost of their new home on builder upgrades. This estimate might come as a (discouraging) surprise to prospective buyers, especially after they’ve toured a model home enhanced with tons of upgrades.
To alleviate the cost, consider providing a selection of free upgrades or post-purchase packages that can help buyers afford their dream home. Some enticing upgrades include:
- Upgraded cabinetry and finishes
- Appliance packages
- Outdoor landscaping
- Energy-efficient upgrades
- Bathroom upgrades
Upgrade packages are a great way to further differentiate the value of new construction over resale home options.
Offer Post-Sale Services That Can Lower Costs
Next on our list? Consider post-sale services that can help buyers afford the cost of their new home. Home maintenance is an area that you can work on to alleviate costs. The average homeowner spends thousands of dollars on maintenance each year, and the idea of expensive home upkeep might even discourage some prospective buyers from purchasing a home in the first place.
Tools like HomeKeep — our home maintenance app — simplify home upkeep by providing regular, easy-to-follow maintenance plans, tutorials, and reminders. By staying on top of home maintenance, buyers can save money in the long run. (Buyers in the Madison, Wisconsin and Des Moines, Iowa areas can also take advantage of HomeKeep’s full service offering, which includes in-person, bundled maintenance services for even more savings.)
HomeKeep: Now Partnering With Builders
At HomeKeep, we don’t just focus on helping homeowners — we also aim to support homebuilders during a challenging time in the real estate industry. That’s why we’re partnering with builders to offer HomeKeep to buyers, thus easing the cost of homeownership. If you’d like to learn more about our builder partnerships, click here.