As the spring housing market grapples with low supply, high prices, and increasing interest rates, potential homebuyers are turning towards new construction homes. According to Nicole Bachaud, a senior economist at Zillow Group, new homes offer more incentives and availability compared to previously owned properties.
Statistics from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development revealed that around 693,000 new single-family homes were sold in March, marking an 8.3% increase from the previous year. The median sales price for these new homes was reported to be $430,700. On the other hand, sales of existing homes saw a decline of 3.7% in March 2023, as per the National Association of Realtors.
The persistently low inventory of existing homes in several U.S. regions can be attributed to the mortgage rate lock-in effect. Homeowners who locked in low mortgage rates in the past are hesitant to sell their properties and risk higher rates. This phenomenon, described as the ‘golden handcuff’ by Bachaud, is pushing potential buyers towards new construction options.
Builders of new homes are more flexible with pricing and offer incentives such as rate buy-downs, price cuts, and covering closing costs. These attractive offers are motivating buyers to explore the new home sales market. Matthew Walsh, an economist at Moody’s Analytics, highlights the trend of builders prioritizing transaction volumes over margins, leading to a more competitive pricing environment in the new construction sector.
While new construction homes historically sold at a premium compared to existing homes, the price gap has significantly narrowed in recent times. Data indicates that the median price of a new home is only about 4% higher than that of an existing home, a stark contrast to the pre-pandemic era when the difference exceeded 40%. This shift is making new construction homes more appealing to price-sensitive buyers with constrained budgets.
The dwindling supply of existing homes has limited options for buyers in the past, particularly those on tighter budgets. However, the current market dynamics are providing buyers with more alternatives in the form of new construction homes. As a result, individuals seeking to purchase a home now have greater flexibility and choice on the new home sales side.
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