The spring housing market has been facing challenges with low supply, high prices, and spiking interest rates, leading would-be homebuyers to shift their focus towards new construction properties. According to Nicole Bachaud, a senior economist at Zillow Group, there is more opportunity in new construction homes compared to previously owned ones. In March, approximately 693,000 new single-family houses were sold, marking an 8.3% increase from the previous year. The median sales price was reported at $430,700, which was higher compared to existing homes. On the other hand, sales for previously owned homes declined by 3.7% during the same period.
One of the reasons for the surge in new home construction sales is the low inventory of existing homes in many areas across the U.S. The mortgage rate lock-in effect, also known as the golden handcuff, has discouraged existing homeowners from selling their properties. With 30-year fixed-rate mortgage rates above 7%, homeowners who acquired their homes at lower interest rates in recent years are reluctant to upgrade to a higher rate. This trend has created an imbalance in the housing market, pushing buyers towards new construction properties.
Builders are known to be more flexible with pricing and offer various incentives to attract buyers. Homebuilders often provide incentives such as rate buy-downs, price cuts, and even covering closing costs. According to Matthew Walsh, an economist at Moody’s Analytics, these incentives have encouraged potential buyers to consider the new home sales market. While new builds are still priced slightly higher than existing homes, the price gap has significantly narrowed in recent months. Walsh noted that the median price for a new home is now only about 4% higher than the median price for an existing house, a significant decrease compared to before the pandemic when the difference was over 40%.
In the past, price-sensitive buyers with tight budgets were limited to the existing homes market. However, the current scenario has created more opportunities for buyers with varying budgets to explore the new home sales sector. Builders are prioritizing transaction volumes over margins, making new construction properties more accessible to a wider range of buyers. This shift has opened up options for buyers who are still in the market for a new home.
Overall, the rise of new home construction in the midst of low supply and high prices reflects the changing dynamics of the housing market. With builders offering incentives and more flexibility in pricing, buyers are finding new opportunities in the new construction sector. As the housing market continues to evolve, it will be interesting to see how the trend towards new construction homes shapes the future of the real estate industry.