Toll Brothers Offers Ultra-Low Rate on Mortgage
Home builders this past year got hammered by the backlog of housing inventory that just sat on the open market. To lure buyers back to the market, some builders have begun to pony up some lucrative incentives. Horsham, Penn.-based builder, Toll Brothers, is waving a carrot that maybe hard to resist. The national builder, with several large developments in the Chicago Suburbs, is offering very low fixed-rate mortgage loans to qualified buyers for its newly-constructed homes.
The Wall Street Journal reports that Toll Brothers, whose local projects stretch from the Chicago suburbs of Bloomingdale to Barringtion and from Elgin to Morton Grove, is beginning to offer ultra-low, 3.99 percent 30-year fixed rate loans – with no up-front points – to those borrowing as much as $417,000 to purchase one of their newly-constructed homes!
Lowering interest rates to raise the bar
The current national average 30-year fixed mortgage rate is just below 5 percent - the lowest since U.S. investor and guarantor Freddie Mac started keeping records 38 years ago. Will other home builders follow? With stiff competition likely to follow in a feverish attempt to grab the handful of home buyers waiting on the sidelines for the perfect deal to fall right in front of them, it's most likely other builders will pull out some tricks of their own.
For years, to incentivize buyers, and make it easier for them to purchase a newly-constructed home, some builders offered rate buy-downs, which reduce mortgage interest rates for a pre-determined initial period. The rate then increases to a market-competitive level for the balance of the loan. Centex Corporation, the third largest home builder in the U.S., is offering 3.5 percent interest rates for the first two years of the loan on homes under contract by February 2nd. After two years, the rate adjusts and locks to 4.5 percent. To qualify for the deal, Centex is requiring a 3.5 percent down-payment and credit quality that meets Federal Housing Administration standards.
Decreasing resale inventories first
Lower interest rates, of course, result in lower monthly house payments. It is hoped the promise of greater affordability could lure many potential homebuyers off the sidelines and into their new home. Resale inventories, however, remain high across the Chicago area – exceeding 12 months of supply in some Chicago neighborhoods and suburbs – and also across the country. Many neighborhoods are loaded with short-sale and foreclosed, bank-owned properties selling at discount prices – giving newer, more expensive homes a run for their money.
As unemployment continues to rise and the country's financial health still on shaky ground, it may take a lot more than lowered interest rates to lure droves of homebuyers back to the market.
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