More Than Half of Builders Used Incentives to Boost Sales in May

The NAHB/Wells Fargo Housing Market Index (HMI) survey conducted in May reveals that more than half of single-family builders are using incentives to bolster sales and/or limit cancellations. This is essentially the same share of builders that were providing incentives during normal market conditions in 2003. By contrast, the percentage of builders providing sales incentives was far higher during the Great Recession. The May 2020 survey reveals that 48% of single-family builders are not using incentives to bolster sales and/or limit cancellations. This of course implies that slightly more than half, 52%, are using some kind of incentive to achieve that objective. What specific incentives are they using? Figure 1 shows the complete list, but the three most likely are:

• Options or upgrades at no or reduced cost (19% of builders report using)
• Payment of closing costs or fees (19%)
• Price discounts/Margin reductions (18%)

Importantly, builders who are using incentives report that paying for closing costs/fees is the most effective strategy, with 27% rating it "very effective" and 56% "somewhat effective."

Figure 1. Incentives Currently Being Used to Bolster Sales/Limit Cancellations (Percent of respondents)

Historical context for the current findings is important in order to understand prior use of incentives. As Figure 2 shows, the use of incentives was much more widespread during the last housing recession, with 73% and 71% of builders, respectively, reporting their use in May 2007 and March 2008. By April 2019, the share had fallen to 64%. In May 2020, in the midst of the COVID-19 crisis, "only" 52% of builders were offering buyers any kind of incentive.

Figure 2. Share of Builders Offering Some Type of Incentive to Bolster Sales/Limit Cancellations – History (Percent of Respondents)

NAHB Economist Rose Quint provided this analysis in an Eye on Housing blog post.