How did home builders screw up the real estate market? Let me count the ways.
Here’s another one.
When home sales began to slow at the start of the downturn, home builders offered buyers incentives — instead of reducing prices — to stimulate demand. The incentives included cars, tuition and credit-card payments, and even cash.
Now, federal investigators are questioning whether some of those incentives misled lenders and caused them to write mortgages that were artificially inflated, contributing to today’s home-price crash.
Using incentives to sell homes has long been a marketing tool for builders. When properly disclosed and structured, the practice is legal. But the Federal Bureau of Investigation is looking into allegations that home builders, brokers and appraisers defrauded lenders by not disclosing unusually large incentives to buyers, which could have added as much as $100,000 to the price of a home.
Housing analysts say incentive schemes prolonged the housing boom in hot markets like Las Vegas and, consequently, have made the downturn all the more severe.