Desperate Homebuilders

As real estate sales slow, buyers are getting free upgrades and even cash.

- Prashant Gopal

Ram Konara, a real estate broker in suburban Dallas, is raking in freebies this year: trips to Lake Tahoe and Santa Barbara in California, Cabo San Lucas in Mexico, and a dude ranch in Wyoming. The home buyers he represents are cashing in, too. They’re winning price cuts of more than $100,000, on top of such free upgrades as media rooms, cabinets, and blinds.

This generosity flows from increasingly desperate home builders. Hot markets are cooling fast as interest rates rise. In the great housing slowdown of 2018, shoppers are reclaiming the upper hand after years of soaring prices that placed most inventory out of reach for many families. “Everybody is hungry for the buyers,” Konara says.

From builders’ perspective, the news is discouraging. New-home purchases tumbled in September to the weakest pace since December 2016. Sales of previously owned homes dropped for a sixth straight month, the worst streak since 2014. Homebuilding stocks have lost more than a third of their value this year, and a widely used measure of builders’ confidence fell in November. Of course, rising wages may help put more houses in reach. Starter homes are still in demand, and some smaller, more affordable markets such as Columbus, Ohio, and Grand Rapids, Mich., remain as strong as ever. But the shift is especially striking given the robust U.S. economy.

On top of interest rates, sellers in some regions face added challenges. President Trump’s tax overhaul places caps on tax deductions for mortgage interest and property taxes, hurting high-tax regions such as New York’s suburbs. In Manhattan, added supply is about to hit the market, with 4,000 new condo units to be listed for sale in 2019, almost twice as many as this year, according to brokerage Corcoran Sunshine Marketing Group.