Builders Are Losing Their Edge; Resale Sellers Are Cutting Prices; Why Buyers Need to Compare the HOUSE and the FINANCING
For the last few years, homebuilders had a major advantage over regular home sellers.
⠀
They could cut prices.
⠀
They could offer closing-cost credits.
⠀
They could buy down mortgage rates.
⠀
And they could make the monthly payment look much better than a resale home down the street.
⠀
That advantage is starting to shrink.
⠀
A new Wall Street Journal report says resale sellers are becoming more aggressive on price and concessions as higher mortgage rates pressure buyers. The Wall Street Journal
⠀
That matters because builders are now competing not only against other builders.
⠀
They are competing against homeowners who are finally willing to negotiate.
⠀
I. BUILDERS HAVE BEEN WINNING WITH FINANCING
This is something I have been talking about for a while.
⠀
A resale seller usually thinks in one dimension:
⠀
“What price will I accept?”
⠀
A builder often thinks in several:
⠀
What price?
⠀
What closing-cost credit?
⠀
What rate buydown?
⠀
What upgrade package?
⠀
What incentive gets the buyer to sign today?
⠀
That is why a brand-new home listed at the same price as a resale home can still look dramatically cheaper on a monthly-payment basis.
⠀
Builders have been willing to spend real money to make the financing work.
⠀
HousingWire recently reported that new homes were actually selling for less per square foot nationally than existing homes — $205 versus $212 in July. HousingWire
⠀
That is a huge reversal from the way new construction normally trades.
⠀
II. NOW RESALE SELLERS ARE STARTING TO BLINK
The interesting change is happening on the resale side.
⠀
Lennar and KB Home have both said existing-home sellers are becoming more aggressive competitors. The Wall Street Journal
⠀
That means more price reductions.
⠀
More seller credits.
⠀
More willingness to negotiate.
⠀
And in some markets, more pressure on builders to keep increasing incentives just to stay competitive.
⠀
The Wall Street Journal reported that new-home sales per community fell sharply in September and that builder margins are getting squeezed as incentives get more expensive. Lennar’s gross margin fell to 15.8%, its lowest level since the aftermath of the financial crisis. The Wall Street Journal
⠀
That tells you something important.
⠀
Builders are not giving away incentives because they are feeling generous.
⠀
They are doing it because affordability is the problem they have to solve.
⠀
III. THIS MATTERS IN RIVERSIDE AND OTHER HIGH-BUILD AREAS
This gets especially interesting in markets where buyers can choose between large new-home communities and resale neighborhoods.
⠀
Think Riverside County.
⠀
Parts of the Inland Empire.
⠀
Sacramento-region growth corridors.
⠀
Parts of Arizona, Nevada, Texas and other markets where builders have delivered a lot of inventory.
⠀
A buyer might look at:
⠀
A $700,000 resale home.
⠀
And a $725,000 new home.
⠀
At first glance, the resale looks cheaper.
⠀
But what if the builder offers a large credit toward financing?
⠀
Now compare that with a motivated resale seller willing to give a price reduction plus closing-cost credit.
⠀
Suddenly, the question is not:
⠀
“Which house costs less?”
⠀
It is:
⠀
“Which transaction gives me the better total deal?”
⠀
That is a very different analysis.
⠀
IV. DO NOT COMPARE ONLY THE INTEREST RATE
This is where buyers can get trapped.
⠀
A builder advertises a very attractive mortgage rate.
⠀
The buyer sees the number and assumes the builder deal automatically wins.
⠀
Not necessarily.
⠀
A below-market rate has a cost somewhere.
⠀
It may be funded through the builder’s margin.
⠀
It may require specific financing.
⠀
It may come with a higher home price.
⠀
It may apply only to selected inventory.
⠀
It may require a certain closing date.
⠀
There is nothing wrong with that.
⠀
The incentive may still be fantastic.
⠀
But compare the entire transaction.
⠀
Purchase price.
⠀
Rate.
⠀
Points.
⠀
Closing costs.
⠀
Property taxes.
⠀
HOA.
⠀
Mello-Roos or other assessments.
⠀
Upgrades.
⠀
Reserves.
⠀
And what happens if you refinance later.
⠀
The lowest advertised rate is not automatically the cheapest house.
⠀
V. RESALE SELLERS CAN PLAY THIS GAME TOO
This is the part I think many listing agents are still missing.
⠀
A resale seller does not have to compete with a builder only by cutting the price.
⠀
They can potentially compete on payment.
⠀
Instead of another $20,000 price cut, that same amount might be used — subject to loan-program limits and the transaction — toward:
⠀
Closing costs.
⠀
A temporary buydown.
⠀
A permanent rate buydown.
⠀
Other allowable seller credits.
⠀
Or a Seller Pre-Lock strategy where available.
⠀
The right structure depends on the buyer.
⠀
A cash-heavy buyer may prefer price.
⠀
A buyer trying to preserve reserves may prefer credits.
⠀
A payment-sensitive buyer may care much more about financing.
⠀
The money should solve the actual problem.
⠀
VI. BUYERS HAVE MORE LEVERAGE — IF THEY CAN AFFORD TO USE IT
There is a weird irony in this market.
⠀
Buyers have more negotiating power in many places than they have had in years.
⠀
But high mortgage rates are keeping many of those buyers from participating.
⠀
That means the buyer who is actually qualified, comfortable with the payment, and ready to move may have an unusually good negotiating position. Recent national reporting shows buyers outnumbered by sellers by a wide margin while sellers have become increasingly willing to negotiate. The Washington Post
⠀
Not everywhere.
⠀
Not every property.
⠀
But more often than we saw a few years ago.
⠀
This is why I would rather have the financing strategy figured out before the offer.
⠀
Then when we find a motivated seller or aggressive builder, we know exactly what to ask for.
⠀
THE BOTTOM LINE
The new-home versus resale battle is getting more interesting.
⠀
Builders are still using incentives.
⠀
But resale sellers are becoming more willing to negotiate too.
⠀
That is good for buyers.
⠀
Just do not reduce the decision to:
⠀
“Which one has the lower rate?”
⠀
Or:
⠀
“Which one has the lower price?”
⠀
Compare the whole transaction.
⠀
The house.
⠀
The financing.
⠀
The incentives.
⠀
The cash required.
⠀
The monthly payment.
⠀
And the long-term cost.
⠀
Because the best deal is not always the cheapest house.
⠀
And it is definitely not always the lowest advertised mortgage rate.
⠀
It is the structure that works best for the buyer actually purchasing it.
⠀
ABOUT MICHAEL BELFOR
Michael Belfor is a Branch Manager and Loan Originator with American Pacific Mortgage, bringing approximately 24 years of mortgage lending experience.
⠀
An APM President's Club and Top 1% originator since 2017, Michael helps homebuyers, homeowners, and real estate investors navigate conventional, jumbo, FHA, VA, Non-QM, DSCR, TIC, condo, construction and other mortgage financing solutions.
⠀
Michael Belfor | American Pacific Mortgage⠀
Direct: 415-233-4235 | Orange County: 949-577-6449
Website: www.mikebelfor.com⠀
⠀
⠀
Builders are cutting prices and offering incentives, but resale sellers are starting to compete. Learn how buyers should compare price, seller credits, rate buydowns and total monthly payment.
new construction vs resale 2026, builder incentives, seller credits, Riverside County new homes, mortgage rate buydown, California homebuyer strategy
Comments