
New homes are offering an affordability edge right now, but
tariff impacts could stymie progress, according to the
Realtor.com New Construction Quarterly Report.
In the first quarter of 2025, the median list price for newly
built homes fell slightly year-over-year to $448,393, reducing
the price gap with existing homes to its lowest first-quarter
level in five years. This, combined with builders building
smaller homes and lower mortgage rates for new home buyers, is
making newly built homes a more accessible pathway to
homeownership. For now, at least.
"America is short, approximately, four million homes, and new
construction is stepping in to fill the affordability gap left
by a tight existing home market," said Danielle Hale, chief
economist at Realtor.com. "Builders are delivering smaller homes
at lower prices and often offering financial incentives that
make monthly payments more manageable. But looming tariffs on
key building materials could limit this much-needed progress and
create new cost pressures in the months ahead."
New home construction offers (slight) mortgage rate relief.
Buyers of newly built homes are securing mortgage rates
approximately 0.5 percentage points lower than those buying
existing homes, to the tune of 6.1% vs. 6.6% in 2024. On a
median-priced new home, given today's mortgage rates, a
half-percentage point difference translates to more than $160 in
monthly savings.
Builders' ability to offer rate buydowns whether via in-house
financing or close relationships with lenders helps make these
deals possible. This financial edge adds further appeal to new
builds.
New construction premium shrinks.
In the first quarter of 2025, the premium on newly built homes
dropped to 13.5%, the lowest level for any first quarter since
Realtor.com began tracking this metric in 2020.
This trend is a result of falling new home prices, which have
declined 1.3% since the first quarter of 2023, while existing
home prices have continued to rise. Even as resale inventory
catches up, newly built homes now make up 18.5% of active
listings, which is still higher than levels seen in the first
quarter of the pandemic-era years of 2020¨C2022. And compared to
the first quarter of 2020, the number of new construction
listings is 27.4% higher whereas existing listings were still
6.9% lower.
The shift reflects builders' response to affordability
challenges by building smaller homes and scaling down cost,
especially in regions where demand is strong and land is more
readily available, such as the South and West.
Builders deliver smaller, more affordable homes.
Among the 100 largest U.S. metropolitan areas, 26 markets posted
year-over-year declines in both the median listing price and
square footage of newly built homes. The sharpest declines were
concentrated in the South, including metros like Atlanta and
Nashville.
Little Rock, Ark., recorded the largest year-over-year drop in
the median listing price for new construction, down 12.9%.
Cities with less recent new construction activity, including
Philadelphia and Chicago, also appeared on the list, which is a
promising sign for affordability in regions that have
historically seen slower builder investment. Out West, some of
the most notable shifts occurred in Colorado Springs, Colo.,
where new home sizes fell 13.8%, and Oxnard, Calif., where new
home prices dropped 11.6%.
And about those tariffs...
Despite the progress, looming tariffs could threaten the
affordability gains made in recent quarters. A proposed hike in
duties on Canadian lumber, from roughly 14% to more than 34%, as
well as tariffs on drywall, fasteners and other construction
materials from Mexico and China, could raise builder costs.
These increases could force home prices upward, once again
putting affordable new construction out of reach.
View more research insights from
Realtor.com here.
Source: hbsdealer.com