Incentives: A Positive Trend Developing For Homebuilders?

Since the housing market peaked two years ago, homebuilders have been trying to use incentives to lure buyers in. They've met with varying degrees of success, but it has certainly impacted margins all the way down.

On Ryland Group’s Q3'08 conference call, CEO Chad Dreier said they were increasing the use of incentives in some markets and that on average they were impacting margins “in the 15% range.”

Interestingly, homebuilders M/I Homes (MHO) and Centex (CTX) indicate that their use of incentives is on the decline. Likely a positive impact on homebuilder margins in future quarters if a trend develops.

From M/I Homes Q3’08 conference call:

There is less competition, builders are pulled out of the market, we feel that we are gaining market share clearly in Columbus [Ohio] we are and we’re probably gaining market share ever since slowly in Cincinnati [Ohio] as well. I’d like to think that we’re sort of incentived out in those markets, who knows.

From Centex’s FQ2’09 conference call:

Our discounts and incentives came down again this quarter and in each month of the quarter as well. Specifically, our sales discounts and incentives were 7.9% of the average selling price, down from 10.5% last quarter making the third consecutive sequential decrease… They’re about half what they’ve been at their peak levels. So that’s really what’s driving the improvement in gross margins.

Comments

[JREB777:]

Give us a break.
Incentives are down by a few percentage points, but final sale price is down by double digits!
Yes of course people prefer a lower price to a lot of stuff in their home they are not really in need. Marble, Granit, etc.
Buyers are just saying give me the low price and that is it!
Home builders are saying, we are done with the granti top inventory and thus there is no monetizing those items any more, so no need to push them.

No wonder most have lost money in the market.
Like you, they have no idea what is really happening and portend a thesis that has no logic.

Good luck!
You will need it.

2008 Nov 07 01:14 PM