Within the top three, the main trend has been toward increased use of reduced home prices as a sales incentive. Ranking a distant third among incentives used by builders at the beginning of 2006, reduced home prices became more prevalent as the housing downturn continued, eventually rising to the top of the list as the sales incentive used more often than any other in 2009 and 2010..
The use of special incentives to help boost sales has been a relatively common marketing strategy among builders for some time. NAHB has sought to track this phenomenon by periodically including questions on incentives in the special question section of the monthly Builders’ Economic Council survey that is used to generate the HMI (hereafter, the HMI survey).[2]
In order to isolate the effect of the HBTC, the standard incentive questions were modified on the June 2010 HMI survey, so that builders were asked to place particular incentives they may be using into one of four categories:[3]
- Currently using and will continue with no changes
- Currently using & will continue, but with changes to compensate for not having the HBTC
- Starting to use to compensate for not having the HBTC
- Starting to use for reasons unrelated to the HBTC
Nearly three-fourths of all builders indicated that they were currently using and planned to continue their current use of at least one incentive unchanged; 15 percent indicated that they were altering at least one of the incentives they had been using to compensate for the expired tax credit; 12 percent indicated that they were adopting at least one new incentive to compensate for the expired credit; and 15 percent were adopting at least one incentive for reasons unrelated to the HBTC (see attached table).
Comparing the 2010 numbers to responses from previous surveys, which simply asked builders if they were currently using a particular incentive, is not completely straightforward. The best comparison is probably with builders who checked either category 1 or 2 in the 2010 survey, because each of these categories indicates current use of an incentive.
Common Types of Incentives
Some types of sales incentives are quite common among builders; others are comparatively rare. Figure 2 shows the incentives checked most often under category 1 (currently using and will continue to use with no changes) in June of 2010. In other words, Figure 2 shows the specific incentives which are still being used as they were before the HBTC expired. Discounting or reducing home prices, offering options or upgrades at no or reduced costs, and paying closing costs were the most common types of incentives in this category.
These same three have also scored consistently as the most commonly used incentives in past HMI surveys. Within the top three, the main trend has been toward increased use of reduced home prices as a sales incentive. Ranking a distant third among incentives used by builders at the beginning of 2006, reduced home prices became more prevalent as the housing downturn continued, eventually rising to the top of the list as the sales incentive used more often than any other in 2009 and 2010 (see the history provided in the attached table).
A question on green features (offered at no or reduced cost) was added in 2010, to align with the way builders perceive the market. In previous surveys, no matter how a general question on options and upgrades was worded, builders considered “green” a distinct category and listed it frequently in the space provided to describe “other” incentives. When included as an explicit category on the questionnaire, offering green features at no or reduced cost was the fourth most common incentive currently being used.
Another change in the 2010 questionnaire was to combine the infrequently used “free car” and “free trip” into a single incentive called “free give-aways,” citing cars and trips as examples. Although still far down the list of sales incentives in common use, builders checked the general give-aways incentive more often than they had checked cars and trips combined on previous surveys.
For more: http://www.nahb.org/generic.aspx?sectionID=734&genericContentID=142380&channelID=311
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