NEW YORK (Reuters) - Not satisfied with your home purchase as the value plummets? No problem. Return it and get your money back.
That is what Rockrose Development Corporation is promising potential buyers of hundreds of condominiums in New York, as sellers of real estate nationwide become desperate to unload inventory where prices are sliding quickly.
Rockrose will buy back the apartment after five years at 110 percent of the purchase price, no questions asked.
Home builders, trying to work off the largest overhang of inventory since at least the early 1960s in the toughest spring selling season in decades, have been forced to come up with new ideas to bring buyers to their open houses.
Aside from money-back guarantees, sellers are giving away credits for new kitchens and other accouterments, mortgage protection plans if buyers lose their jobs, and lower mortgage rates at the home builder’s expense.
“People need to be convinced to buy a home because it is almost guaranteed to lose value over the remainder of this year and perhaps beyond,” said Lawrence White, professor of economics at New York University’s Stern School of Business.
With mortgage rates hovering around record lows and affordability at a record high, potential home buyers already have several good reasons to be house hunting.
But people are still hesitant to buy with unemployment at its highest level since 1983 and home prices, by some accounts, forecast to fall another 20 percent through the end of next year.
Rockrose is not alone in offering what was once unthinkable to draw in buyers.
Luxury home builder Toll Brothers is offering a lofty $100,000 incentive to spur sales for its residences at Belle Lago Villas, located in southwest Florida, in Estero.
The incentive is flexible and can be used toward customizing options, like upgraded flooring or kitchen appliances, or financing options such as using the incentive toward closing costs or buying down rates — whatever the buyer chooses.
“The incentive has been well-received and we have seen increased interest,” said Ken Thirtyacre, president of the Florida West Division of Toll Brothers.
Rockrose, a privately held developer based in New York, is converting a 27-story lower Manhattan rental building into hundreds of condominiums and needs to find buyers fast as prices in Manhattan — which had held off the steep losses seen in other parts of the country — fall fast.
“For those sitting on the sidelines, this gives them a sense of security and a motivation to act,” said Kathleen Scott, director of sales at Rockrose.
The U.S. housing market is in the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy, as well as the rest of the world. A strong spring season may hasten a turnaround for the housing sector and portend a recovery for the U.S. economy, the world’s largest.
The U.S. government is offering an $8,000 tax credit, part of the stimulus bill, for first-time home buyers, which is helping boost sales in some regions. But many people, who are unemployed or who fear they may lose their job, are disinterested in purchasing a home.
Toll Brothers, in response, recently launched a program called the “Mortgage Protection Plan” in which the company pays for a buyer’s mortgage if the buyer becomes unemployed.
The Commerce Department said new home sales climbed 4.7 percent in February after reaching a record low in January. Sales have declined by 41.1 percent over the past year and are 75.7 percent below their July 2005 peak.
Slashing already record low mortgage rates is another path being taken. Home builder Lennar Corp. is offering a fixed 3.625 percent rate on certain 30-year fixed-rate mortgages for qualified buyers, substantially below average rates that have been hovering in the range of 4.70 to 4.80 percent. The low rate, however, comes with an array of stipulations.
NYU’s White said some incentives can help spur sales, while others are gimmicks for media attention.
“If it helps sell a home, then it certainly is a success,” he said.
Additional Reporting by Lucia Mutikani; Editing by Leslie Adler