Renting? Homebuilders have deals for you
In a bid to capture the attention of first-time buyers, builders conduct pet adopt-a-thons, promote low rates and talk up the 'coin-free' laundry.
To turn renters into homeowners, desperate homebuilders are being creative. They're gathering addresses to contact tenants, participating in rent-with-equity programs and wooing them with pet adopt-a-thons.
It's another strategy to boost anemic sales as the sector limps through its worst downturn in decades, one that has shuttered several builders nationwide. And some say renters, who have always been a huge market for homebuilders, now may be more important than ever.
"The tougher the market gets, the more back to basics we get," said Dan Klinger, president of K. Hovnanian American Mortgage, the lending subsidiary of builder Hovnanian Enterprises. "And soliciting renters is about as basic as it comes."
First-time buyers not saddled with an existing home to sell have become critical for a recovery, pushing builders to design smaller and more affordable homes. And they're racing the clock: A federal tax credit of up to $8,000 for qualified first-timers expires Dec. 1, while funds for California's credit of up to $10,000 for buyers of new homes could be exhausted soon.
Builders are accentuating the positive – near-record low interest rates and more affordable prices that may make owning cheaper than renting. Of course, builders face many hurdles, including fears among homebuyers that prices have further to fall, the inability to secure credit, mounting foreclosures and job insecurity that makes renters reluctant to commit.
Indeed, Mid-America Apartment Communities said recently that the number of renters leaving their properties to buy a home in the first quarter fell by 31% compared with a year earlier.
Still, with nearly 89 million renters nationwide, there's plenty of potential to sell the 340,000 single-family homes that residential research firm Metrostudy estimates will be started this year.
"If every one of them was from a renter, you're just barely putting a dent in the apartment supply out there," said Jeffrey T. Mezger, KB Home's president and chief executive. "I think it's a large untapped market."
KB Home, the nation's fifth-largest builder by annual closings, redid its Web site to highlight monthly payments over the total price. At the Sage at Desert Passage in former bubble market Maricopa, Ariz., "Right Now You Can Own From $773 a Month," assuming a down payment of 3.5%, good credit and a 30-year fixed loan.
"It's a very powerful tool," Mezger said.
The builder also offers more flexible and personalized floor plans. "It's certainly been a help, because our sales are up and our first-time buyer sales are up," Mezger said, adding that in its first quarter, 70% of deliveries went to first-time buyers, a spike from 53% a year ago.
Because renters often live in cookie-cutter communities with plain-vanilla walls, KB Home holds seminars in its design studios that let buyers craft a near-customized house — a strategy that also helps compete with those foreclosures. It highlights features that apartment dwellers might desire, such as garages, ample storage and laundry facilities that don't require "pockets full of quarters."
And, because renters can be banned from having pets, KB Home frequently holds adoption events at new communities, partnering with a local animal group and paying some of the adoption fee, which includes vaccinations, a microchip, spaying/neutering and disease testing. The popular events aren't limited to buyers.
KB Home and several other builders also work with apartment giant Equity Residential in its Rent With Equity program. For each rent payment, Equity grants as much as 20% in a noncash rent credit. Buyers can use the credit for up to 3% off the home price.
The free service, which helps Equity with tenant retention, is offered in more than a dozen states and, according to the Web site, participating public builders include Beazer Homes, Ryland, Pulte Homes, Centex and DR Horton. While the program is not new — and it wasn't necessarily needed during the boom — it's again becoming more prevalent.
Like KB Home, Hovnanian, the sixth-largest builder, holds seminars, usually with a draw including cookies, bagels or pizza. Topics include strategies for saving a down payment — including using the rental security deposit – credit checks and mortgage information.
"You talk to a customer about how little cash is necessary to own a new home, at the same time prequalify them to make sure they can get a mortgage," Klinger said. "...You can take care of everything in one sitting."
To find participants, Hovnanian distributes fliers at apartment communities. But instead of placing information under doormats or under a car windshield wiper, Klinger prefers mailing renters directly. The company studies rental communities, looking for monthly rents that match nearby homes and then mails information to potential buyers.
"It probably wouldn't be a good idea to go on the premises and solicit their renters," he said.
This article was written by Dawn Wotapka for The Wall Street Journal.
one that has shuttered several builders nationwide.
It's been more than "several".
What the writer might be trying to say is 'it has shuttered several large, nationwide builders'.
Small builder outfits go down easily in a recession like this. The numbers of them that are 'shuttered' is quite high.
This is a wonderful idea. Very creative and should boost sales and sustain the home builders until this market recovers.