To turn renters into home owners, desperate home builders are
being creative. They're gathering addresses to contact tenants,
participating in rent-with-equity programs and wooing them with pet
adopt-a-thons.
It's another strategy to boost anemic sales as the sector limps
through its worst downturn in decades, one that has shuttered
several builders nationwide. And some say renters, who have always
been a huge market for home builders, now may be more important
than ever.
"The tougher the market gets, the more back to basics we get,"
said Dan Klinger, president of K. Hovnanian American Mortgage, the
lending subsidiary of builder Hovnanian Enterprises (HOV). "And
soliciting renters is about as basic as it comes."
First-time buyers not saddled with an existing home to sell have
become critical for a recovery, pushing builders to design smaller
and more affordable homes. And they're racing the clock: A federal
tax credit of up to $8,000 for qualified first-timers expires Dec.
1, while funds for California's credit of up to $10,000 for buyers
of new homes could be exhausted soon.
Builders are accentuating the positive - near record low
interest rates and more affordable prices that may make owning
cheaper than renting. Of course, builders face many hurdles,
including fears among home buyers that prices have further to fall,
the inability to secure credit, mounting foreclosures as well as
job insecurity that makes renters reluctant to commit.
Indeed, Mid-America Apartment Communities (MAA) last week said
the number of renters leaving their properties to buy a home in the
first quarter fell by 31% compared with a year earlier.
Still, with nearly 89 million renters nationwide, there's plenty
of potential to sell the 340,000 single-family homes residential
research firm Metrostudy estimates will be started this year.
"If every one of them was from a renter you're just barely
putting a dent in the apartment supply out there," said Jeffrey T.
Mezger, KB Home's (KBH) president and chief executive. "I think
it's a large untapped market."
KB Home, the nation's fifth-largest builder by annual closings,
redid its Web site to highlight monthly payments over the total
price. At the Sage at Desert Passage in former bubble market
Maricopa, Ariz., "Right Now You Can Own From $773 a Month,"
assuming a down payment of 3.5%, good credit and a 30-year fixed
loan.
"It's a very powerful tool," Mezger said.
The builder also offers more flexible and personalized floor
plans.
"It's certainly been a help because our sales are up and our
first-time buyer sales are up," Mezger said, adding that in its
first quarter 70% of deliveries went to first-time buyers, a spike
from 53% a year ago.
Because renters often live in cookie-cutter communities with
plain-vanilla walls, KB Home holds seminars in its design studios
that let buyers craft a near-customized house - a strategy that
also helps compete with those foreclosures. It highlights features
apartment dwellers might desire, such as garages, ample storage and
laundry facilities that don't require "pockets full of
quarters."
And, because renters can be banned from having pets, it
frequently holds adoption events at new communities, partnering
with a local animal group and paying some of the adoption fee,
which includes vaccinations, a microchip, spay/neutering and
disease testing. The popular events aren't limited to buyers.
KB Home and several other builders also work with apartment
giant Equity Residential (EQR) in its Rent With Equity program. For
each rent payment, Equity grants as much as 20% in a non-cash rent
credit. Buyers can use the credit for up to 3% off the home
price.
The free service that helps Equity with tenant retention is
offered in more than a dozen states and, according to the Web site,
participating public builders include Beazer Homes (BZH), Ryland
(RYL), Pulte Homes (PHM), Centex (CTX) and DR Horton (DHI). While
the program is not new - and it wasn't necessarily needed when
frenzied buyers camped overnight during the boom - "it's again
becoming more prevalent."
Like KB Home, Hovnanian, the sixth-largest builder, holds
seminars, usually with a draw including cookies, bagels or pizza.
Topics include strategies for saving a downpayment - including
using the rental security deposit - credit checks and mortgage
information.
"You talk to a customer about how little cash is necessary to
own a new home, at the same time prequalify them to make sure they
can get a mortgage," Klinger said. "...You can take care of
everything in one sitting."
To find participants, Hovnanian distributes fliers at apartment
communities. But instead of placing information under door mats or
under a car windshield wiper, Klinger prefers mailing renters
directly. The company studies rental communities, looking for
monthly rents that match nearby homes, and then mails potential
buyers information.
"It probably wouldn't be a good idea to go on the premises and
solicit their renters," he said.
-Dawn Wotapka; Dow Jones Newswires; 201-938-5248;
dawn.wotapka@dowjones.com