Effective Homebuyer Incentives

Identifying Ways to Lure Homebuyers Back into Market

A critical step for the housing market rebound is luring homebuyers back into the market. To learn the most effective incentives builders and home sellers can offer to entice buyers back, the NAHB Research Center conducted a survey of 700 U.S. households in early January 2009.

The survey queried potential homebuyers who indicated they wanted to purchase a home within six months but were "on the fence" due to the overall economy, the state of the housing market, or their personal financial situations. This study employed both traditional survey and analysis techniques as well as Conjoint Analysis, a method that analyzes trade-offs that buyers must make in their purchase decisions.

Why People Aren't Buying Homes

"Contrary to what we hear in the media, we were surprised to learn that the unstable economic environment and a perception that homes are a bad investment were not the primary reasons people are hesitant to buy a house," according to Ed Hudson, director of market research at the NAHB Research Center. Rather, the top responses reflected an attitude of opportunism among this group -- they are holding out until they believe that both mortgage rates and housing values have bottomed-out in order to get the best deal. This is especially true among current renters.

Another key concern among those surveyed is the fear that banks will reject their mortgage application. "Even people with excellent credit ratings have been psyched out by recent reports that mortgage financing is difficult, even impossible to get," said Hudson.

Prospective homebuyers also fear that they don't have enough for a down payment. This fear is especially acute among current homeowners.

Most Effective Homebuyer Incentives

Not surprisingly, this research found that there was no "silver bullet" in luring buyers back into the market. Rather, the findings indicate it would take a combination of seller incentives, market conditions, and home features to convince consumers that now is an excellent time to buy a home.

An effective combination of incentives identified in the survey would likely include (1) buying-down interest rates, (2) offering down payment assistance or low down payment financing, and (3) offering the best home value in town can pull buyers off the sidelines, according to Kevin Tilley, NAHB Research Center's marketing research manager. Beyond these, sellers can take steps to assure potential buyers that they can qualify for mortgage financing after lining up the right lenders, appraisers, and financing programs.

Both Hudson and Tilley were surprised that some traditional incentives offered by builders and sellers finished close to the bottom of respondent preferences. Incentives such as free upgrades or home improvements, an introductory period with no mortgage payments, and cash at the closing table showed the ability to draw some back into the market, but they were less effective than more appealing financing options.

Incentive Effectiveness Dependent on Markets

So this leaves builders wondering, "What are the best incentives to offer?" Again, there’s no single answer to this question. Tilley says preferences vary widely by buyer demographics. "Low-end buyers, for example," he says, "are much more concerned about getting the best house at the best price, while high-end buyers are more concerned about interest rates and having adequate down payments." The study also found that there are distinct geographic market differences in what motivates re-entry into the home buying market.

Find Out More

More complete information on the findings of this national study is available in a Summary Report. You can also find exactly what will motivate your on-the-fence buyers by repeating this study in your market.