While the spring housing market has been plagued by low supply, rising prices and rising interest rates, potential homebuyers are focusing on new construction.
the reason? New homes have more incentives and availability than previously owned ones.
“There are more opportunities in new construction,” said Nicole Bacho, an economist at Zillow Group.
About 693,000 new single-family homes were sold in March, an 8.3% increase from a year ago, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. The average selling price was $430,700, the agencies found.
Meanwhile, sales of previously owned homes fell 3.7% compared to March 2023, the National Association of Realtors found.
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Many areas in the United States are facing a decline in existing home inventory, as the effect of mortgage rate stabilization, or “golden shackles,” prevents “existing owners from becoming sellers,” Bacho explained.
With 30-year mortgage interest rates above 7%, homeowners who have bought at much lower interest rates in recent years don't like the prospect of trading their low interest rate for a higher one.
Meanwhile, buyers are turning to builders, which are usually more flexible with pricing. Homebuilders offer buyers incentives such as price reductions and price reductions. Homebuilders can also pay closing costs, experts say.
“This has helped motivate some potential buyers to shift into the new home sales market,” said Matthew Walsh, associate director and economist at Moody's Analytics.
The price gap for new construction is narrowing
While new builds still sell for slightly more than existing homes, the price gap has narrowed significantly since the fall.
“Prices are much closer to parity than at any time in the last three decades,” Walsh said.
Over the past six months, the average price of a new home has been only 4% higher than the average price of an existing home. This level is much lower than before the pandemic when the average price of a new home was 40% higher than an existing home, Walsh explained.
“On the current side, you have such a narrow supply to sell,” he said. “But on the new homes side, you have builders prioritizing transaction volume over margins.”
In the past, price-sensitive buyers with limited budgets were limited to the existing home market. Nowadays, buyers who are still searching may have more options when it comes to new home sales.
