How long can builders keep up these ridiculous incentives?

Question

Every builder I see is throwing everything at buyers to get homes sold — rate buydowns into the 4’s, appliance packages, closing costs, you name it.

I know this is happening across the country, but how long can builders sustain this model? At some point, margins have to give.

My original understanding was that they did this to maintain production levels and weather the storm of low buyer activity but that was over a year ago. There has to be a point where they throw in the towel, right?

Is builder activity slowing down around you? Have builders started to pull back on their incentives?

Jay Hinrichs · Answer

depends on what the builders margins are..  if a builder like for us.. has 100 to 200k NET NET profits on our new builds offering 10 to 20k is a no brainer .. I have not had to offer any incentives personally on the 90 home development I am just finishing up.. we went the other way we dolled out the houses and we raised prices and we garnered the picky buyer that would go through the production builders homes then come over and pay 100k more for ours in the same area and same sq ft.. of course the production builders need PRODUCTION we did not we were fine at 2 closings to 2.2 closings a month that was generating 200 to 400k of Net net income to the project .. So it depends is the answer..  Down there in Texas were you have massive production capacity and massive land supply .. its a different market than out west were we are land constrained in a big way.. ..

Jay Hinrichs · Answer

market specific..  Keep in mind West coast land is simply not like Texas FLA or other parts of the country.. buildable lots shovel ready basically start at 150k and go up.. Land use is VERY restrictive.. In your market land use is known to be very friendly and in FLA there are millions (literally) of platted lots ready to go.. I built 5 homes on platted lots I bought for under 10k each in the Ocala area and we squeaked out 10 to 15k profits was not worth it. So I am done with low end 300k houses.. Not enough margin.. In Charleston SC another market ( downtown area) were lots are rare.. I just paid 250k for a bare lot and am going vertical now.. 1800 sq ft sell for low 900s  So yes very market specific.. I will say though last 90 days it has been slower than the last 4 years here in Oregon. But I am sold out of my single levels so I expected it and if I have to cut prices a tad on the last 7 I have no biggee profits are already in the bank on the previous 82. When builders have to rely on selling to investors or are building rent to own.. those are all tight margins for the builders.. Investors want incentives and if they are using a turn key broker those guys will charge more than a local real estate agent many times.. So they are moving inventory on a very low margin play.

Ashley Kehr · Answer

I read an article this morning stating that this was one of the reasons that sellers are pulling their properties off market because they can't compete with the builder incentives. I also think this is a great opportunity to build to rent. Live in it for one year as a new build then move out and rent it out.

Isaiah Hall · Answer

We’re seeing the same trend here in Houston. Builders are still offering aggressive incentives like rate buydowns, closing cost assistance, and upgrade packages to keep volume moving.

Nationwide, 62% of builders offered incentives in June, and 37% cut prices, according to the NAHB. Builder confidence also dropped to 32 (lowest since 2022). In Texas, housing starts and permits are down over 6%, with Houston leading much of that decline.

Margins are definitely getting squeezed, but most builders are still prioritizing production and keeping crews working over profitability. Unless rates drop or demand spikes, I’d expect these incentives to stick around through at least the end of the year.

Ariam Jesus Ubieta Sando · Answer

Great point Isaiah. We’re seeing the same thing in South Florida. Builders are still offering strong incentives but shifting to smaller layouts and simpler finishes to keep things moving.

Ariam Jesus Ubieta Sando · Answer

Builders are not pulling back yet. They are doubling down to maintain absorption rates and keep projects moving. Incentives are already built into their pro forma. What is changing is the type of inventory: more spec homes, smaller square footage, and leaner finishes. The real pullback will come if rates stay high and demand softens heading into Q4.

Ariam J. Ubieta Sando

Sales Associate/Realtor

Real Broker, LLC

Matthew Paul · Answer

Sometimes builders just have to move product .  They may have 5 years or more invested in time and money before they build the first house . Loans are in place , they have to keep moving and sell . I doubt that they are losing money , just not making as much .

Chris Seveney · Answer

Depends on the builder, the national builders can do it, get away with it and still have ok margins. The smaller builders and one-off builds are getting crushed - we are seeing hundreds of millions per week on new construction and fix and flip loans that were completed and just sitting and now in default because of either maturity defaults or the builder stopped paying and just waiting to sell. Issue is they are still priced to high and are being fools for not cutting the price or they are just completely oblivious and do not want to beleive reality.

Jules Aton · Answer

I haven't noticed this on Eastern Shore of MD and DE beaches. Plenty of new builds selling. My guess is in upcoming years as the baby boomers start passing away there will be a glut of 2-5 year old properties available which will cause the builders grief.

How long can builders keep up these ridiculous incentives?

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