Homebuilders are increasingly using ultra-low mortgage rates to keep sales moving—offering financing far cheaper than traditional lenders and reshaping the economics of new-home purchases, The Wall Street Journal writes.
Companies like D.R. Horton and Lennar are buying forward commitments from lenders, allowing them to advertise eye-catching rates as low as 3.99%, or even 0.99% in the first year, without triggering limits on seller concessions. These incentives, often worth more than 10% of a home’s value, help builders offload excess inventory while avoiding outright price cuts that could ripple across entire communities.
But analysts warn the strategy is distorting home prices and leaving many borrowers exposed. New-home prices for large builders have risen faster than comparable segments, and new data shows a growing share of builder-financed FHA borrowers are already underwater. With many buyers stretching to qualify—nearly two-thirds of FHA borrowers now exceed a 43% debt-to-income ratio—the market faces heightened risk if home values soften.