But price drops have been prominent in the South and West as builders try offering more affordable options through incentives. Meanwhile, increased competition on existing homes and weaker buyer demand has driven down new-construction prices, according to Realtor.com.
“In a market still grappling with a shortage of nearly 4 million homes, affordable new construction plays a critical role in restoring balance,” Realtor.com chief economist Danielle Hale said in a statement. “Even with recent slowdowns in starts and permits, builders continue to deliver new homes to the market at a healthy pace.”
Although the overall home price for a new build is higher than an existing home, buyers can get a better price per square foot, Realtor.com data shows. Nationally, new builds typically list for about $218 per square foot, compared with $226.56 for existing homes, according to Realtor.com.
The top five markets where new-construction home prices dropped year over year last quarter, according to Realtor.com:
“Instead of shrinking rooms to reduce overall home size, a common tactic among our architectural designers was to eliminate unnecessary circulation space,” JBREC wrote in its U.S. Residential Architecture and Design Survey report. “Essentially, we’re Tetris-ing the functional rooms together, avoiding wasted square footage on nonfunctional areas like hallways.”
The mortgage-rate buydown, the industry term for discounted mortgage rates, is the most “desired and most effective” incentive offered in the new-home market today, she said.
Buydowns are an enticing option for eager prospective homebuyers who are closely monitoring mortgage rates but have been disappointed by the stubbornness of high interest. The ICE Mortgage Monitor report for July showed more than 8% of borrowers financed homes with adjusted-rate mortgages (ARMs) or temporary buydowns last year, which reduced monthly payments in the first years of the loans.
However, ICE Mortgage warned that “while these loans provide short-term relief, they may introduce future payment shock, particularly if interest rates remain elevated or reset higher.”
