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Advertising Strategies for Today's Housing Market |
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Creative FinancingThis builder is offering customers an adjustable-rate mortgage with the predictability of a fixed rate.
As a private builder in a market dominated by big public builders, McCormick says Astoria is working hard to differentiate itself. It has revisited its home designs and begun building move-up homes with prices in the $200 per-square-foot range — double that of its starter homes. And it’s spending more on customer surveys to learn what people want, so it can compete better with the big guys. But the most creative thing the company is doing may be its approach to financing. McCormick says slowing sales in the Las Vegas area are largely caused by rising interest rates. The current situation is the reverse of the past seven years, when historically low rates made it possible for buyers to assume larger mortgages without increasing their monthly payments. Low rates increased demand for houses and led to historically high home prices. Rising interest rates are having the opposite effect. "Rising interest rates have increased monthly payments by 10 percent, so prices have had to come down proportionally," McCormick says. McCormick says most of the builders he knows have responded to the increase in interest rates by reducing prices, or holding the line on price and offering incentives. Astoria has added a finance offering to the mix. The rationale behind Astoria’s move into financing is similar to that of home-improvement contractors: Focus not on price, but on payment. Working with a mortgage broker, Astoria developed a financing product offering the advantages of interest-only and adjustable-rate mortgages, but without the drawbacks associated with these types of loans. McCormick calls the product "a buy-down adjustable-rate mortgage." It's an adjustable-rate mortgage that starts with a low rate, rises during the first three to five years, and then becomes a standard 30-year fixed mortgage. Although this sounds like an option ARM, buyers pay interest and principal from the beginning, so there’s no negative equity associated with it. And, unlike a traditional adjustable-rate mortgage, it's not tied to market rates: The interest-rate increases and the final fixed rate are all written into the contract, so customers know their exact payments for the life of the loan. The payoff for customers is getting a relatively low mortgage for the first few years. While not all of Astoria's buyers opt for the program, McCormick says it has become an important part of their sales mix. When the company offers buyers a choice between incentives, a price cut and lower payments, many opt for the lower payments. "Most people are payment buyers. That's how they buy cars, furniture and everything else," he says. |
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