Builders Dangle Cheap Financing; In the Face of Rising Interest Rates, Developers Are Offering New Incentives to Keep Houses Moving
WHEN AUTO makers wanted to keep cars moving off dealers' lots, they offered zero-percent financing. Now some home builders, worried that rising interest rates may clip the pace of new sales, have gotten into the act by making cheaper financing available to home buyers.</br></br>While the builders aren't offering no-interest loans, in some areas they are undercutting the rates offered by more traditional lenders. To entice buyers, big national builders such as KB Homes and smaller developers such as Estridge Companies in Carmel, Ind., are providing incentives ranging from below-market loans to offers to lock in low rates for up to six months.</br></br>In formerly hot markets like Denver and Austin, Texas, builders are sweetening financing deals, paying as much as $4,000 on a $200,000 mortgage to cover a buyer's closing costs.</br></br>Rising rates are expected to play an increasingly important role in the housing market during coming months. Earlier this week, the Federal Reserve raised short-term rates for the second time in two months and further increases are expected this year. While mortgage rates don't move directly in tandem with moves by the Fed, they are expected to rise as the Fed continues to rachet up rates.</br></br>The financial enticements from home builders are a relatively new but growing practice that the Fed highlighted last month in its "beige book" economic report. In response to rising rates, builders are "altering their financing products accordingly in an attempt to make them more attractive," the Fed noted.