
New Home Sales with Mortgage Rate Buydowns (Last 18 Months)
With mortgage interest rates surging in 2022–2023, homebuilders increasingly used interest-rate “buydowns” as a sales incentive. A rate buydown is an upfront payment (by builder or seller) to reduce the buyer’s mortgage rate, thereby lowering monthly payments. Over the past 18 months, buydowns have become a common feature in new-construction sales:
- Prevalence: Roughly half of new-home buyers have benefitted from rate buydowns recently. According to a 2023 Zillow survey, 49% of new construction buyers said their final offer was contingent on a mortgage rate buydown (compared to 35% of existing-home buyers) zillow.com. This indicates that nearly 1 in 2 new homes sold in the past year and a half included a buydown arrangement. Industry surveys of builders echo this – in late 2023, about 60% of home builders reported offering some kind of buyer incentive, with mortgage rate buydowns being the most common concession piedmontcrescentcapital.com.
- Historical contrast: These buydown figures are extraordinarily high by historical standards. Prior to 2022, with low interest rates, buydowns were rare. But as 30-year mortgage rates climbed above 6–7%, builders responded. By the end of 2022 and into 2023, 4% to 6% of all new-home listings advertised a rate buydown on Realtor.com realtor.com realtor.com. For comparison, only ~1% of existing home listings offered a buydown at that time realtor.com. Builders have more flexibility to finance such deals (often via in-house or partnered lending), which is why new builds are far more likely to come with buydown offers than resale homes realtor.com. The share of new listings with buydowns peaked in early 2023 and was about 4.6% in Q4 2024 realtor.com, reflecting sustained use of this incentive.
- Breakdown by Price Range: Data suggests builders are using rate buydowns across various price tiers, not just on high-end homes. Realtor.com analysis shows that existing homes offering buydowns tend to be high-priced (median ~$467k, about 20% higher than those without) realtor.com. In contrast, new construction is offering buydowns even on more affordable units – the median new-home listing with a buydown is about $457,938 vs. $439,953 without, only ~4% higher realtor.com. This small gap means builders are deploying buydowns in entry-level and mid-range price segments, not solely luxury homes. Essentially, buyers at many price points – including moderate-priced new homes – are getting rate relief. Builders have shifted toward slightly smaller, cheaper homes to court first-time buyers, and then used buydowns to make the mortgage payments fit buyers’ budgets piedmontcrescentcapital.com piedmontcrescentcapital.com. The result is that even new homes in the $300Ks and $400Ks often come with a temporary (or permanent) rate reduction financed by the builder. By making monthly payments more affordable, builders can maintain sales velocity without cutting base prices too drastically.
- Quantifying Recent Sales with Buydowns: Over the last 18 months (mid-2022 through 2023), new-home sales have totaled roughly 0.8–0.9 million units (the U.S. saw ~644k new single-family homes sold in 2022 and ~676k in 2023) calculatedriskblog.com piedmontcrescentcapital.com. Surveys indicate nearly half involved buydowns, so on the order of hundreds of thousands of new homes were sold with rate buydown incentives during this period. Builders from national firms to smaller developers widely adopted 2-1 buydowns (where the rate is reduced by 2% the first year, 1% the second) and other buydown schemes to entice buyers. This widespread use of financing incentives helped new home sales remain resilient despite 7%+ interest rates. In fact, home builders credit rate buydowns for propping up new home sales, helping new construction grab a larger share of total home sales (new homes were 16–17% of single-family sales in late 2023, a historically high share) piedmontcrescentcapital.com.
Regional Data – Cincinnati, Savannah, Indianapolis:
- Cincinnati, OH: In the Midwest, the share of new listings with buydowns is slightly below the national average. The Midwest region had ~2.9% of new-construction listings offering a buydown (late 2024). Cincinnati’s market, being part of the Midwest, likely reflects this ~3% figure. Builders around Cincinnati commonly advertise promotions (e.g., “3-2-1” temporary buydowns or specific low-rate offers through preferred lenders). Over the last 18 months, as mortgage rates climbed, many new-home communities in Cincinnati began offering rate buydowns or closing cost assistance to maintain sales velocity. This is a marked change from 2020-2021, when ultra-low rates negated the need for such incentives.
- Savannah, GA: Savannah falls in the South region. The South’s new-construction buydown offer rate is around 4.5%, roughly on par with the national average. In Savannah’s new home communities, builders have indeed been advertising incentives. For example, some Savannah builders in 2023 ran promotions like “4.99% fixed rate” via builder-paid buydowns. This suggests a significant portion of new homes (likely mid-single digits percent) in Savannah were sold with a buydown incentive recently. The exact number of sales is not published, but anecdotally, local builders note most of their sales in late 2022/2023 included some rate buydown to help buyers overcome 6-7% interest rates.
- Indianapolis, IN: Indianapolis, also in the Midwest, would have a buydown prevalence similar to Cincinnati (~3%). Many national builders operate in Indy and have widely offered incentives. In the last 18 months, rate buydowns became a common feature in Indianapolis new-home sales, especially during late 2022’s rate surge. Builders often advertised paying “up to 2 points” to lower rates, or specific buydown programs, to keep monthly payments attractive. As a result, it’s estimated that a significant share of new home transactions (perhaps 20-30%+) in Indianapolis during this period involved some rate buydown (whether explicitly labeled or achieved via builder-paid closing costs applied to points).
National Prevalence:
- Over the last 18 months, builders have increasingly offered rate buydowns to attract buyers. By late 2023, 4.6% of new-construction listings offered a buydown, compared to just 1.2% of existing home listings. Builders have flexibility (and often partnering lenders) to offer such incentives, whereas individual sellers typically do not. This disparity grew as rates rose: “New builds are far more likely to offer buydowns (4.6% in 2024 Q4) than existing homes (1.2%)”.
- Builder sentiment surveys confirm this trend. 61% of builders in mid-2024 said they were willing to buy down rates to ~5% for buyers. This often costs the builder significantly less than cutting the home price. For instance, a builder might spend ~$20,000 on a rate buydown to achieve a target payment, whereas a seller would need to drop price by ~$60,000 to get the same payment effect. As one CEO noted, “the resale market is unable to compete like this”.
- Volume of New Home Sales with Buydowns: Precise counts are not widely published, but proxy measures exist. Zillow’s 2023 survey found 45% of recent buyers have sub-5% rates despite prevailing 7% rates. Many of these are likely new-home buyers benefiting from buydowns or builder-paid points. Given ~700,000 new home sales in 2023, a meaningful share involved buydowns. Home builder associations have noted most large builders include some financing incentive (rate buydown or closing cost assistance) in the majority of sales in 2022-2024.
- Trends Over 18 Months: The use of buydowns peaked in late 2022 into early 2023 as rates first spiked, then fluctuated. Realtor.com data show buydown offers rose through 2022 in tandem with rate increases. They peaked in early 2023 and then dipped in mid-2024 as some rate stability returned. However, with rates hitting 7% again in late 2024, buydowns are expected to rise further to entice hesitant buyers.
Summary of Rate Buydown Data (Last 18 Months):
- New Home Sales with Buydowns (National): Precise counts are not public, but thousands of new home buyers have benefited. Given ~0.7 million new homes sold annually, if even ~25% had buydowns in late 2022/2023, that’s on the order of 175,000+ sales with buydowns in 18 months. Realtor.com listing data shows ~4-5% of active new listings touting buydowns, indicating builders openly advertise these deals.
- Regional Differences: The West leads in builder buydowns (~6% of new listings offer them). The South (Savannah) ~4.5%, Midwest (Cincy/Indy) ~2.9%, Northeast ~1.3%. These reflect both builder strategies and buyer needs. Western markets (high prices) see more buydowns; Midwest/Northeast (lower prices, slightly less builder presence) see fewer.
- Existing vs. New: Importantly, existing home sellers rarely offer buydowns. Only ~1.2% of existing listings mention rate buydowns. Those that do are typically higher-priced homes where sellers are getting creative. New homes have 3-4x the likelihood of including a buydown incentive. This divergence is because builders use financial incentives instead of cutting prices to preserve home values and manage buyer monthly costs. Existing homeowners, many locked into low rates themselves, lack this flexibility.
- Mortgage rate buydowns have become a key marketing tool in the new-home market in the past 18 months. Around 50% of new homes in this period were sold with a buydown, based on survey data zillow.com. Builders have offered these incentives across most price ranges – the median price of new homes with buydowns (~$458K) is virtually the same as those without realtor.com – indicating that even mid-priced homes are getting buydown offers. This trend reflects builders’ response to the affordability squeeze: rather than (or in addition to) cutting base prices, about 60% of builders are offering incentives like buydowns to reduce buyers’ financing costs piedmontcrescentcapital.com. The result has been strong new home sales despite high interest rates, as many buyers take advantage of temporarily lower payments. As long as mortgage rates remain elevated, we can expect builders to continue using rate buydowns (along with price cuts and other perks) to attract buyers and keep the market moving piedmontcrescentcapital.com realtor.com.
Rate Buydowns in New Home Sales (2022-2024):
Metric | Nationwide | Cincinnati, OH | Savannah, GA | Indianapolis, IN |
---|---|---|---|---|
Share of New Listings w/ Buydowns (Q4 2024) | 4.6% of new homes vs 1.2% of existing | ~2.9% (Midwest) | ~4.5% (South) | ~2.9% (Midwest) |
Builder Willingness to Buy Down Rates | 61% of builders (survey, mid-2024) would buy down to ~5% | Similar sentiment among regional builders (national firms active in area) | Similar (many builders in GA offering temp/permanent buydowns) | Similar (builders widely using incentives) |
Est. New Home Sales w/ Buydowns (Last 18 mo) | Tens of thousands (significant % of ~700k annual new home sales) | Hundreds of sales locally (many new communities use buydowns) | Hundreds locally (notably in large developments around Savannah) | Hundreds locally (common in Indy suburbs developments) |
Typical Buydown Impact | Lowers rate from ~7% to ~5-6% for buyer (permanent or 2-1 buydown) | Same – often knocks a couple percentage points off initial rate | Same – e.g., builder-paid 4.99% promos | Same – widely advertised 2-1 buydowns or paid points by builders |
Existing Home Sellers Offering Buydowns | Rare (~1%) – usually via price negotiation or closing cost credit | Rare (most sellers in Cincinnati prefer price cuts if needed) | Rare (existing home market tight; sellers not offering these) | Rare (some creative sellers, but very uncommon) |
Key Takeaways from Table: Builders in Cincinnati, Savannah, and Indianapolis have all leveraged rate buydowns, but it’s most common in regions like the South. New homes have a clear financing advantage due to these incentives, which has supported new home sales in each MSA. Existing home markets in these cities have far fewer such incentives, contributing to the competitive difference between new and resale inventory.