In the current housing market, potential homebuyers are facing challenges such as low supply, high prices, and spiking interest rates. However, many are turning to new construction homes as a viable option. According to Nicole Bachaud, a senior economist at Zillow Group, new homes are offering more opportunities and incentives compared to previously owned homes. In March alone, about 693,000 new single-family houses were sold, marking an 8.3% increase from the previous year. The median sales price for these new homes was $430,700, making them an attractive option for buyers looking for affordability and availability. In contrast, sales for existing homes dropped by 3.7% in the same period, indicating a shift in buyer preferences towards new construction.
One of the driving factors behind the shift towards new construction homes is the low inventory of existing homes in many parts of the U.S. The mortgage rate lock-in effect, also known as the golden handcuff, is keeping existing homeowners from putting their homes on the market. With 30-year fixed-rate mortgage rates above 7%, homeowners who purchased their homes at lower rates are hesitant to sell and buy a new home with higher interest rates. This shortage of existing homes has created an environment where buyers are turning to builders who offer more flexibility with pricing. Homebuilders are providing incentives such as rate buy-downs, price cuts, and even covering closing costs to attract buyers to the new home market.
While new construction homes traditionally sold for higher prices than existing homes, the price gap has significantly narrowed in recent months. Matthew Walsh, an assistant director and economist at Moody’s Analytics, points out that the median price for a new home is now only about 4% higher than the median price of an existing house. This is a significant change from before the pandemic, when the price difference was more than 40%. As a result, price-sensitive buyers with tighter budgets now have more options in the new construction market than ever before. Builders are focusing on increasing transaction volumes rather than maximizing margins, making new homes a more attractive option for budget-conscious buyers.
In the past, buyers with limited budgets were often constrained to the existing homes market. However, the current shift towards new construction homes has opened up more options for buyers of all financial backgrounds. With incentives, availability, and narrowing price gaps, new construction homes are becoming a preferred choice for many buyers in the current housing market. As the demand for new homes continues to grow, builders are responding by offering more incentives and flexibility in pricing, making new construction an appealing option for buyers in search of their dream home.