Local builders use incentives to lure buyers

MANATEE — With foreclosures still saturating the market and homebuyer demand remaining tepid, local developers and homebuilders are increasingly offering incentives and using other tactics to sell their new houses and condominium units.

They’re dropping prices, building smaller houses, offering country club memberships and paying closing costs in hopes of spurring sales. It’s a far cry from the housing boom’s peak, when buyers lined up outside sales centers to snag vacant lots and reserve homes at premium prices.

“We’re no different than any other retail product: We’ve had to adjust to the market,” said Albert Sanchez, president and co-owner of Gibraltar Homes LLC.

For the luxury homebuilder, that has meant smaller houses — and lower price tags.

While it still offers 4,000-square-foot houses at upwards of $1 million, the builder also has added smaller models at its Bougainvillea Place development in Ellenton. Sizes and prices start at 1,089 square feet and $129,900.

That has resulted in a four-fold increase in the number of telephone contacts or visitors to the project’s sales center in just one week, the company said.

Other builders, including some of the country’s largest, are downsizing their offerings and stepping up their incentive programs.

Lennar recently offered units at its River Terrace Condominiums at River Strand project for $1,000 or less per month, with financing starting as low as 3.5 percent — about two percentage points below prevailing mortgage rates. The Miami-based builder also included free golf and tennis memberships with each unit sold.

During the second quarter, Lennar’s sales incentives averaged $52,000 per house and those houses were about 12 percent smaller on average, the company said in its quarterly earnings report last month.

A National Association of Home Builders survey released last month found homes started in 2009’s first quarter averaged 2,335 square feet, nearly 300 square feet less than a year earlier.

“That’s the first time that’s happened since 1973,” said Stephen Melman, the association’s director of economic services.

The trend likely will continue for the foreseeable future, as six in 10 builders the trade group surveyed in May said they planned to build smaller houses in the coming year. Only 1 percent said they’re going bigger.

But few expect the downsizing trend to continue after the housing market recovers. The builder association projects home sizes will stabilize around 2,500 feet in the next five years, or about the same as in 2007.

Pat Neal of Neal Communities credits smaller homes and low introductory prices with making the first half of 2009 among his company’s best in 40 years. But he also doubts the downsizing trend will last.

“This is the fifth time I’ve seen this movie,” he said, saying homebuyers also scaled back during recessions in 1971-72, 1979-80, 1981-82 and 2001-02, then resumed buying ever-larger houses. “This is just part of the housing cycle.”

Besides downsizing, other builders have turned to incentives to lure buyers off the fence.

Earlier this year, Lee Wetherington Homes offered “free” lots in two Lakewood Ranch neighborhoods and in Rye Wilderness Estates. The buyer actually had to buy the lot, with the purchase price deducted from the construction cost of a new house.

Several custom homebuilders joined together during the Christmas holiday season to offer Lakewood Ranch Country Club platinum memberships, valued at $52,000 each, to buyers of selected lot/home packages. And Bruce Williams Homes is offering to pay up to $5,000 in options for buyers of its new houses this month.

Melman said use of such promotional gambits typically rise during market downturns, but that their success boils down to the underlying product.

“By far, the best thing they can do is build what people want,” he said. “If it’s a smaller house, it’s a smaller house.”

Duane Marsteller, transportation/growth and development reporter, can be reached at 745-7080, ext. 2630.