Credit Countdown

Tax credit expiration appears to yield lukewarm results despite builders' best promotion efforts.

Although housing numbers have picked up significantly this spring, as the April 30 expiration of the federal home buyer tax credit program approached, housing stakeholders appeared less impressed with the program's efficacy the second time around.

“As most builders have said already, we don't believe the tax credit has provided the impetus that we expected,” said Meritage Homes CEO Steve Hilton during an earnings call in late April. “We're just not seeing the surge [in buying activity].”

Wachovia housing analyst Carl Reichardt echoed the observation in a related research report: “We note that no calendar quarter home builder has exceeded our unit order estimates so far, and that field commentary, in general, indicate that the tax credit has not proven to be as robust a catalyst to sales as many had hoped.”

However, Citi's Josh Levin noted in his April private builder survey that several home builders had seen an uptick in sales activity in the last days before the credit's expiration.

And it wouldn't have been for a lack of trying. During the last week of the tax credit, many builders put their promotions—both on site and online—into overdrive in an attempt to capture the stragglers.

Builder Web sites, in particular, were full of flashing countdowns, visually shouting at buyers to hurry and sign a contract by midnight April 30, when the tax credit would officially sunset.

For example, a “Breaking News” notice crawled around a flashing box on Lennar's Web site, with a countdown and a hurry-up message. Buyers then were teased into checking their local markets for specific offers. In Central Florida, Lennar advertised so-called vampire hours, where sales offices stayed open until midnight.

KB Home launched a similar promotion in a number of markets, including Dallas and Southern California, calling it a Moonlight Madness event.

Tax credit matching programs were popular for a number of big builders, including Beazer Homes, M/I Homes, and Standard Pacific Homes. Standard Pacific, for example, offered to match the federal tax break in some markets with “flex money” that could be used for closing counts, buying down interest costs, or options.

However, many programs came with strings attached. M/I's tax credit madness events in Orlando and Tampa, Fla., and Raleigh, N.C., promised “7 days of insane deals.” Rolled up in the special deal were a 4.25 percent interest rate and all closing costs and prepay fees paid. However, the deal only applied to conventional 30-year mortgages with a 20 percent down payment. Moreover, buyers had to have a minimum 720 credit score and apply for the loan within 24 hours of signing a sales contract.

Some Ryland Homes' divisions took the credit match idea one step further. The company's Indianapolis division, for one, doubled the tax credit in savings on a new Ryland home. In simple math terms, this means the combined incentives could put as much as $24,000—$8,000 from the federal tax credit and $16,000 from Ryland—back into a first-time buyer's pocket.

Of note, however, was that some of the builders with the loudest tax credit expiration messaging and promotions also had the most spec inventory to move.

Pulte Homes' Web site had a small blue box noting the tax credit would expire soon and, when clicked, sent buyers to a list of finished homes that might qualify for the break. However, its list of homes available seemed somewhat short in many markets, which may reflect in part the move toward a more build-to-order model.

D.R. Horton management, on the other hand, increased its spec count to have more homes available to capitalize on any buying frenzy the credit would generate. A quick look at the available move-in-ready homes in its markets showed that executives made good on their word. Buyers who clicked through to view quick-close homes had quite a selection to choose from in many markets. —Teresa Burney and Sarah Yaussi