LGI Homes, one of the nation's largest homebuilders, says buyer incentives will remain a key strategy this year in dealing with stubborn affordability challenges.
A recent survey by the National Association of Home Builders showed a dip in builders' use of incentives, but LGI plans to offer closing cost assistance, discounts on its older homes, price reductions in select neighborhoods and mortgage rate buy-downs to boost demand among its core customer, the first-time buyer, according to Chairman and CEO Eric Lipar.
In a buy-down, a builder takes profit from sales to reduce the mortgage rate and make the monthly payment less expensive.
"We are having to spend more dollars than we ever had to," Lipar said Tuesday on a conference call to discuss fourth-quarter and year-end 2024 earnings. "It's expensive to get that customer, and we have to go through more customers, if you will, to find individuals that qualify."
LGI, based in The Woodlands, Texas, ranks as the 15th-largest U.S. homebuilder, according to the most recent rankings from Builder magazine. The company builds in more than 30 markets and 21 states and said it has sold more than 75,000 homes since its founding in 2003.
Lower mortgage rates would go a long way to making homeownership more attainable, but rates are unlikely to drop significantly in 2025, analysts say.
Consumer budgets strained
"I think all incentives will continue to be important," said Brad Hunter, head of Hunter Housing Economics in West Palm Beach, Florida, in an interview. "These affordability issues are going to be persistent all year."
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Record U.S. home prices and elevated mortgage rates in recent years have crimped consumer budgets. Some buyers prefer new construction because homebuilders can offer sales incentives, unlike individual sellers of existing homes.
Still, last year proved to be more challenging than expected, Lipar said, noting that mortgage rate relief didn't materialize even after the Federal Reserve lowered interest rates in the fall. What's more, concern about policy shifts by the Trump administration also affected the market, according to Lipar.
"Despite this, we met, and even exceeded, many of our key strategic goals for 2024," he said.
The company said it ended 2024 with a record 151 active communities, up 29% from the prior year, and hired more workers to staff those developments.
LGI's top markets last year were Charlotte, North Carolina, and Las Vegas, with 7.4 closings per community per month. Rounding out the top five were: Washington, D.C.; Raleigh, North Carolina; and Fort Pierce, Florida.
The homebuilder sold 6,131 homes in 2024, down 8.9% from 2023, but cited "strong execution" in the fourth quarter in the face of economic uncertainty. For the year, LGI home sales revenue fell 6%, and the average sales price per home sold fell 4.2% to $365,394.
Business to start 2025 has been slower than it was at the same time in 2024, Lipar said, but the company expects to sell 6,200 to 7,000 homes for the year and have as many as 170 active communities. It anticipates maintaining the average home sales price of between $360,000 and $370,000.
"This year we are staying the course and remain committed to maintaining profitability through operational discipline and to positioning LGI Homes for sustainable, long-term growth," Lipar said.