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Dealing With Excess Inventory

The torso and right hand of a White business man in a black suit, white shirt, and black tie. His hand is balancing a fulcrum. The see-saw on the fulcrum has "demand" on one side and "supply" on the otherr. The "Supply" side is pointing downward, signifying more supply than demand

The recent housing market has turned on a dime, going from lacking inventory to excess inventory seemingly overnight. Here a couple ways to address excess inventory without giving away the entire farm.

Takeaways

  • Selling bulk inventory to investors may be a useful strategy.
  • Providing incentives can help keep houses from sitting empty on the market.
  • It’s important not to overdo it in efforts to reduce excess inventory.

1. Selling to investors could help

A group of about 50 small, white cardboard cutouts of houses. Each house cutout has a four-pannel window on the right side. One house is bright white and under a spotlight, while the other houses fade into a dark background. The farther away from the spotlit house they are, the more in the shadows they are,.

One strategy that some builders have used to reduce excess inventory is selling homes in bulk to investors. This is an especially useful strategy if you find investors who are interested in the Build to Rent industry in places where it’s booming, like Texas.

Developing and fostering relationships with investors could provide an escape hatch for the problem of excess inventory. However, it may not be an appropriate strategy for all builders.

For example, investors may only be interested in larger volume communities, which may be difficult to swing for smaller or mid-sized builders.

But if having too much land and empty homes is becoming an issue for you, contacting investors about purchases may be a useful strategy.

2. Providing incentives may lead to more occupancy

A large metal watering can on the left with the word "incentive" printed on it in blue. The can is watering a white daisy that 's planted in a ime green pot that has the word "success" on it in white letters. The can and pot are on a wood plank patio in front of an orange background

A thinner buying market may mean that you might need to provide more incentives than you have over the past few years.

During the pandemic, when fierce competition and extremely low interest rates prevailed, incentives were much less common. But rising interest rates and more inventory than expected has swung the pendulum, quickly and aggressively.

We’ve created a more comprehensive guide about the Do’s and Don’ts of offering incentives. Some of the keys to focus on are:

  • Don’t let incentives cut into your top-line prices.
  • Do know the market to determine incentives.
  • Don’t use blanket incentives.
  • Do make sure you’re still protecting your bottom line with a 2-10 Home Buyers Warranty (2-10 HBW) Structural Warranty.

3. Remain disciplined as the market swings

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Offloading inventory for its own sake can lead to regrets down the line. While it’s important to hit sales quotas, it’s also prudent to recognize that these market conditions we’re experiencing now likely won’t last forever.

For example, interest rates—though still high—are edging away from historic highs. As these rates fall, we may see more qualified buyers re-enter the market.

Additionally, even though excess inventory is a real problem for many builders, you might take solace in the fact that new construction is still popular, especially among younger buyers. While many younger buyers do indeed struggle with affordability, the ones who can afford a home may tilt toward homes like yours.

Finally, each home you build and eventually sell will come with longer-tail risks that you need to manage. Be sure to give yourself and your buyers—whether traditional or institutional—the peace of mind you both deserve with a 2-10 HBW Structural Warranty.

Learn how you can protect your business and add valuable selling points to your new builds with a 2-10 HBW Structural Warranty.

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