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One major homebuilder is resorting to Black Friday discounts to lure buyers back to the market

Nov 25, 2022, 19:54 IST
Business Insider
Homebuilder sentiment has plunged since March, when the Federal Reserve began raising interest rates to bring down inflation and cool the housing market.Kirk Fisher/Getty Images
  • At least one major builder is slashing prices to attract homebuyers.
  • Lennar, the nation's second-largest homebuilder, advertised Black Friday deals on its website.
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At least one major homebuilder is joining the Black Friday frenzy this year, slashing prices as it tries to lure buyers back to the market.

Lennar, the nation's second-largest homebuilder, advertised "Black Friday Deals on select move-in ready homes" at the top of the home page of its website as of Wednesday. Click the link and you'd find a four-bedroom home in central Florida listed for $399,999, a price reduction of roughly $57,000. Other homes promoted on the site offered similar price cuts.

These aren't your run-of-the-mill discounts on flat-screen TVs or last season's clothing. These price drops offer some of the clearest evidence of just how much has changed for homebuilders over the past year, as they've shifted from scrambling to keep up with demand to dropping prices to keep inventory moving.

Builders were riding high in the first couple months of this year, when the average rate for a 30-year mortgage was still below 4%. But the Federal Reserve's steep interest-rate hikes, which began in March and eventually sent the average mortgage rate skyrocketing past 7%, put an end to homebuilders' rally.

Faced with the prospect of paying hundreds of dollars more for a mortgage each month, buyers retreated from the market in droves. Homebuilders' immediate prospects, and their outlook for the future, quickly soured. The National Association of Home Builders, which uses surveys to measure builder sentiment on a scale of 0 to 100, saw the monthly score fall from 83 in January to 33 in November — only slightly better than during the dark early days of the COVID-19 pandemic.

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In July, when the housing market was reeling from a series of interest-rate hikes, D.R. Horton, the nation's largest homebuilder, said it was scaling back its production and offering more incentives to buyers to keep deals going. PulteGroup, a publicly traded builder based in Atlanta, described similar headwinds around the time.

Buyers have continued to pull out of the market amid persistent inflation and high home prices. Nearly 18% of home sales nationwide were canceled in October, the most since 2013, according to Redfin.

The National Association of Realtors estimates that home sales will decline from 5.2 million in 2022 to 4.8 million in 2023 because of high mortgage rates and inflation, Insider previously reported.

Lennar declined to comment for this story. But in a third-quarter earnings call with analysts in September, the company's CEO, Stuart Miller, offered a mostly optimistic long-term outlook, while conceding that the housing market was weakening and that sales would "just drop off" if the company didn't lower prices or offer incentives to buyers.

"As we bring prices down and incentives up, demand is still there," Miller said during the call.

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