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New Homes Now Cheaper Than Used: A Market Shift
3 Oct
Summary
- New homes sold for a median of $205 per sq ft in July, $7 less than existing homes.
- This price reversal has occurred in 17 of the past 19 months.
- Austin offers the deepest new home discount at 19.3% less per square foot.
The U.S. housing market has seen a notable reversal, with new homes now consistently priced lower per square foot than existing homes. In July, new constructions sold for a median of $205 per square foot, while existing homes commanded $212, continuing a pattern seen in 17 of the past 19 months. This contrasts sharply with previous years when new homes typically commanded a premium.
This affordability shift is largely driven by a surge in new home supply, prompting builders to offer price cuts and incentives. Simultaneously, the inventory of resale homes remains scarce, approximately 17% below pre-pandemic levels, which helps sustain their higher prices. High mortgage rates, now exceeding 7.28% for a 30-year fixed loan, also contribute to this trend through the 'lock-in effect,' discouraging homeowners from selling.
Markets in the Sun Belt, such as Austin, Raleigh, San Diego, and Tampa, are experiencing the most significant discounts on new homes. Austin leads with a 19.3% price difference per square foot. In contrast, markets with limited new construction, like New York City and Cleveland, still see new homes priced at a premium. Zillow suggests increased homebuilding is a key to resolving the affordability crisis.
