Builders sweeten deals to sell houses

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The worst US housing slump in decades has forced homebuilders to come up with creative ways of luring buyers back to the market.

Facing a triple threat of falling house prices, record declines in sales and mounting losses, builders are hoping cash, “free” swimming pools and upsized kitchen sinks will reinvigorate sales.

“Buyers are demanding deals, and they’re getting everything from flat screen televisions to swimming pools,” said Ted Wilson, housing analyst at Residential Strategies.

Mr Wilson is based in Dallas, Texas, where builders like Centex are offering would-be home buyers free outdoor landscaping worth thousands of dollars.

Centex, which reported almost $1bn (£500m, €700m) in property write­downs this month, has been offering buyers free patios, outdoor fireplaces and wooden arbours worth as much as $33,000. Kevin Jones, marketing director, said the promotion started in July and was aimed at moving inventory faster. “Inventory is stacking up and homebuilders need to move these houses quickly. There is an urgent need to cycle the capital that’s tied up in these homes,” said Mr Wilson.

In addition to upgrades, homebuilders are offering customers steep discounts in an attempt to drive sales.

A recent promotion by builder K. Hovnanian, offering discounts of up to 30 per cent on homes nationwide, led to 2,100 sales in three days, the company said.

Atlanta-based Beazer Homes has held three similar sales since June. Ian McCarthy, Beazer’s chief executive, said last month the company was no longer concentrating on growth. “We’re very much focused on today and getting through this downturn,” he said at a New York conference.

Some homebuilders have offered to pay buyers’ legal fees and closing costs, while others have offered to cover initial mortgage payments, according to research by the National Association of Homebuilders.

These companies are also courting the middle men. In June, Centex treated about 200 estate agents to a lavish party. “Homebuilders are offering realtors extra commissions, trips abroad, you name it,” said Dr Mark Dotzour, chief economist at Texas A&M University’s Real Estate Center.

But despite these aggressive measures many in the market are not convinced the sector will successfully weather the downturn.

Five of the largest homebuilders in the US have reported asset writedowns, charges and expenses worth about $4.5bn in their most recent quarterly filings, Bloomberg data show.

This month Moody’s slashed to junk status its ratings on Centex, Lennar and Pulte Homes, noting it did not expect a rebound in housing until at least 2009.

Unsurprisingly, confidence among US homebuilders has fallen to a record low. The National Association of Home Builders/Wells Fargo sentiment index fell to 18 in October, down from 20 the month before. Levels below 50 mean most respondents view conditions as poor. The index averaged 42 last year.

“It only gets worse from here,” said Kevin Logan, US economist at Dresdner Kleinwort. “This is going to be a very long story.”

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