With Mortgage Rates Rising, Builders are Unloading Homes to Investors


As mortgage rates reach their highest level in 15 years - more than double what they were a year ago - it's not just potential homebuyers feeling the pinch. Homebuilders are feeling the pain, too.

In an effort to free themselves from inventory burden, builders are suddenly offering their homes in bulk to real estate investors at a reduced rate, according to The Wall Street Journal.

With the conventional buyer's market drying up, homebuilders are offering discounted bulk sales of homes to investors at a 10% to 15% discount. Some even offer up to a 20% discount for multiple home investments where buyers can keep their inventory in one area, saving money from driving to various locations, according to the Journal.

Analytics firm CoreLogic Inc. reports that investors bought almost a quarter of all single-family homes in 2021 (24%), up from 15% to 16% annually since 2012. And while 2022 got off to an equally hot start, John Burns Real Estate Consulting estimates that investors purchased only 2% of available homes in July. The bulk discounts may reverse that trend.

One evolving issue, however, is that if builders are unloading homes with investors, an already dwindling home inventory means even fewer options for conventional homebuyers who have seemingly disappeared from the builder market.

September was the worst for new construction buyer interest since 2012, according to the NAHB/Wells Fargo & Co. Housing Market Index. But apparently, discounts have become the music investors have been seeking in a market where mortgage rates have jumped above 7%.

Potential landlords are being actively sought by builders with inventory to unload. By selling homes in bulk, the builders can cut costs on sales offices and what they pay in marketing and advertising as well as cutting customizations.

According to the U.S. Census Bureau, there were 14% more homes under construction in August than a year ago, and according to the Journal, home builders such as Lennar Corp. (NYSE: LEN) and KB Home (NYSE: KBH) are walking away from contracts to buy thousands of lots for future building projects.

The new home investor trend is showing legs as interest rates don't appear to have reached their peak yet. An uncertain economy is bringing a new era of investors to builders in an effort to grow their rental inventory.

Photo by Brett Jordan on Unsplash

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