PRICE PROTECTION for Chicago-area New Home Buyers!
NEW POLICY FROM SEVERAL BUILDERS WOULD COUNTER 'FENCE SITTERS"!
Here in Chicago and nearby, mortgage interest rates are near historic lows. Prices for many types of residential property has fallen in recent months, to levels far more affordable than in recent years. Yet, many potential home buyers are still waiting things out before they buy. Some feel home prices will still fall further, and are delaying their purchases in hopes of getting an even better deal when they buy.
To counter the "wait and see" attitude, some Chicago builders are guaranteeing prices for those buying new homes.
South Barringtion IL-based Kennedy Homes, already being hit by slow sales in recent months, started by offering price and upgrade incentives. Continued lagging new home sales here - units sold dropped from its peak of 46,000 in 2005, to 28,000 last year, a 39% fall off - has spurred this builder to lay off 60% of its staff last week - 20 employees.
When homes appreciate, as they have, reliably, for many years, earlier customers already under contract feel immediately comfortable - they are already beginning to build equity on their yet-to-be constructed home. However, when prices for new customers fall, as has become necessary for many new homes and condos, earlier buyers quickly feel taken advantage of - they paid too much, and are still many months away from living in and enjoying their new home. The new Price Protection Guarantee Programs will ensure that previous buyers will enjoy the same reduced prices that later buyers receive - subject to some time limitations.
Economist A. Gary Shilling, a New Jersey Consultant and author of a couple of books concerning price deflation, feels much of the blame for high unsold inventory for home builders has to do with buyer expectations that prices will fall even further. If they buy NOW - they will pay too much. So they wait! (This also seems to be a concern for buyers or RESALE homes as well, who seem to be waiting on the sidelines in large numbers today).
"Instead of pent-up demand I call it pent-down supply," Shilling says. "When inflation was rampant we saw artificial shortages. Now we are seeing its opposite, an artificial glut."
Suburban Chicago Builders KB Homes, The Ryland Group, Kimball Hill Homes, and city-builder The Belgravia Group are each joining Kennedy Homes by offering their own price protection guarantees
Says Chicago Developer Alan Lev, President of The Home Builders Association of Greater Chicago, and principal of The Belgravia Group, offering price protection has become necessary in today's market of declining new home prices. "Every buyer expects to get a good deal, but buyers also want pricing integrity."
One of Lev's latest developments involves 241 condo and loft units at 565 W. Quincy in Chicago. He is offering a Price Protection Guarantee for most new units being sold in that development.
Most developers will believe soft market conditions will eventually reduce the amount of inventory available here in the Chicago area, as builders cut the number of new homes built, and put supply and demand factors in closer balance. That will reduce downward price pressure, and be good news for the builders that survive. It could mean the end of many incredible incentives for new home buyers, however.
Read more in Mary Umberger and William Sluis's article in today's Chicago Tribune.
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