With the clock ticking on the federal home buyer tax credit, builders expect a surge in traffic as customers seek to take advantage of the government’s $6,500 to $8,000 gift to first-time and repeat buyers, respectively. But the time crunch also means builders who have few or no houses to sell will likely not be able to meet the demand and will likely lose business as a result.
In response to such concerns, one builder, Charter Homes & Neighborhoods has launched a “tax credit guarantee" to assuage buyers' worries about missing the deadline. (To be eligible, a buyer must sign a contract by April 30 and settle on the home by June 30.)
The Lancaster, Pa.-based builder says that for anyone who signs a contract between late December and the end of January, “we will guarantee delivery [of the home] in time to meet the deadline,” says Rob Bowman, the company’s president. Bowman says that the six-month period gives offers both buyers enough time to secure financing and the builder enough time to complete and close the house.
Other builders may want to consider something similar and ramp up production accordingly. For home builders who have altered their model to operate without inventory, the historically busy spring selling season could be a harbinger of a bad year; there may not be enough time to build houses from the ground up to meet the June deadline, according to Chuck Shinn of The Shinn Group in Littleton, Colo.
“Depending on the builder, it takes about three to six months to build a house and to deliver it to the buyer,” Shinn says. For the builder who has no inventory but wants to meet the tax credit deadline for its buyers, the homes at the very least will need to be in the drywall stage and beyond by April 30, Shinn explains, adding that this will be difficult for some builders to pull off.
Though it is conceivable that a builder could break ground on a house by March 15 and get it done in time for delivery for June 30, Shinn says this would be an extremely fast pace of construction. “There is a very short window,” he says.
This development takes on larger implications for unprepared builders because most consultants and other builders believe the market will see a post-tax credit lull that will likely last for some time. Missing out on what could essentially be the last hurrah for the foreseeable future could be detrimental to business, observers say. But builders who miscalculate could also end up with empty spec houses and the accompanying carrying cost, which could be a killer in the current market.
Bowman says his company, which builds entry-level homes from the mid-$150s to single-family homes of nearly $1 million, anticipated a surge in traffic so it started planning early. December bookings were better than expected, Bowman says, and the company is excited about a more robust spring season. The builder is confident that it can meet all agreements signed by the end of January. “We’re doing all we can to help our home buyers, but we are not going to bend the rules to get people to meet the deadline.”
Nigel Maynard is senior editor, products, at BUILDER magazine.