Housing market affordability is so strained that this Fortune 500 homebuilder is offering a fixed 4.25% mortgage rate in some communities

Must read

Nvidia’s China sales are down to a ‘mid-single digit percentage,’ as U.S. controls restrict exports of the $1.7 trillion chipmaker’s leading AI chips

Nvidia crushed expectations with a bumper quarterly earnings report on Wednesday, reporting a 265% increase in revenue from the same period a year ago,...

$1.7 trillion chip giant Nvidia just gained over $100 billion in value after a blowout quarter, but this mega-bearish analyst says the tech industry...

Investors have long had a love affair with U.S. tech stocks from the boom cycle of the late ‘90s and early 2000s that famously...

‘Space junk’ unicorn backed by Japanese billionaire wants to clear the skies for Elon Musk and Jeff Bezos

For more than a decade, an abandoned piece of a Japanese rocket has been speeding uncontrolled around Earth, at risk of colliding with active...

Ritzy ski resort towns like Telluride are going into debt to build affordable housing because their teachers can’t afford to live there

Telluride, a ski resort destination in Colorado, is the first vacation town to sell municipal bonds for affordable housing this year. It likely won’t...

Lennar, a homebuilder ranked No. 119 on the Fortune 500, is presently promoting a “fixed [mortgage] rate of 4.25%” in Colorado.

Getty Images

As mortgage rates began to spike last year, homebuilders across much of the country began to reduce their profit margins—which had grown to record levels during the boom—to do things that would entice buyers back into the market. For some builders, that meant offering aggressive rate buydowns, which in some cases lowered buyers’ mortgage rate below 5%. In some communities, it required cutting prices by 5%, 10%, or even 15%.

Many of the best builder deals disappeared earlier this year as the U.S. housing market started to show signs of life amid the seasonally stronger spring and summer windows.

However, the fact that the mortgage rate shock has regained bite just as the housing market entered into the seasonality softer fall window has translated into many homebuilders once again rolling out juicer incentives.

Look no further than Lennar, a homebuilder ranked No. 119 on the Fortune 500, which is presently promoting a “fixed [mortgage] rate of 4.25%” in Colorado for buyers who “sign a purchase agreement on a select move-in ready home in Colorado between 09/18/23 and 09/25/23 and close by 10/31/23.” That’s quite the mortgage rate buydown considering that on Tuesday the average 30-year fixed mortgage rate sat at 7.30%.

The fact that big homebuilders, including Lennar, still have profit margins that are well above pre-pandemic levels gives them wiggle room to offer aggressive buydowns when needed.

But just because Lennar is offering a 4.25% mortgage rate buydown in Colorado doesn’t mean buyers across the country can find that level of a buydown in their home market.

Among U.S. housing markets, Colorado markets have seen greater softening as a result of strained fundamentals.

“In normal times, we’ll have a 10% to 15% premium over resale [prices] in that ZIP code, it’s that localized…. When the market was running prior to Fed rates going up, and mortgage rates going up, in some locations our premium got as high as 30% over resales in certain areas. So then you’re out of whack with your biggest competition, which is resale. You can do it as long as it works, but once the market starts to normalize, you have to come down. Over time it tends to revert to the means, which is a 10% to 15% premium over resale,” KB Home’s CEO Jeff Mezger recently told Fortune.

Mezger says that Denver—where Lennar is offering its 4.25% mortgage rate buydown—is still their weakest housing market.

“The [housing] market where the premium to resale got too far out there, and the market has been correcting, and it has been difficult for the industry, would be Denver. Where prices just moved very quickly, and moved away from affordability, and we’re continuing to adjust there and demand remains a little more sluggish than average,” Mezger says.

Want to stay updated on the housing market? Follow me on Twitter at @NewsLambert.

Subscribe to Well Adjusted, our newsletter full of simple strategies to work smarter and live better, from the Fortune Well team. Sign up today.

More articles

Latest article

Nvidia’s China sales are down to a ‘mid-single digit percentage,’ as U.S. controls restrict exports of the $1.7 trillion chipmaker’s leading AI chips

Nvidia crushed expectations with a bumper quarterly earnings report on Wednesday, reporting a 265% increase in revenue from the same period a year ago,...

$1.7 trillion chip giant Nvidia just gained over $100 billion in value after a blowout quarter, but this mega-bearish analyst says the tech industry...

Investors have long had a love affair with U.S. tech stocks from the boom cycle of the late ‘90s and early 2000s that famously...

‘Space junk’ unicorn backed by Japanese billionaire wants to clear the skies for Elon Musk and Jeff Bezos

For more than a decade, an abandoned piece of a Japanese rocket has been speeding uncontrolled around Earth, at risk of colliding with active...

Ritzy ski resort towns like Telluride are going into debt to build affordable housing because their teachers can’t afford to live there

Telluride, a ski resort destination in Colorado, is the first vacation town to sell municipal bonds for affordable housing this year. It likely won’t...

$24.6 billion mega deal rocked by Colorado AG’s claim supermarkets colluded not to hire each other’s workers

Kroger’s $24.6 billion acquisition of competing grocery chain Albertsons could be in jeopardy after two challenges by state attorneys general—and a claim by Colorado’s...