New Construction Offers a Boost in Home Affordability, but Tariffs May Stall Progress
- New-home buyers pay lower mortgage rates, by about half of a percentage point
- New construction median list prices dip and shrink the price gap with existing homes to its lowest level since 2020
- Builders are delivering smaller, lower-priced homes in 26 of the top 100 U.S. metros
AUSTIN, Texas, May 8, 2025 /PRNewswire/ -- New homes are offering an affordability edge in today's challenging housing market, 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, at least for now.
"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 a Slight Mortgage Rate Relief to Buyers
New construction continues to offer a financial edge beyond list prices. Buyers of newly built homes are securing mortgage rates approximately 0.5 percentage points lower than those buying existing homes, 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, especially in a high-rate environment where every percentage point can impact buying power.
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 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, 2020–2022. 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 market's 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 in Key Metros
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, highlighting where smaller and more affordable construction is gaining ground. The sharpest declines were concentrated in the South, including metros such as 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%.
Tariff Threat Looms
Despite the progress, looming tariffs could threaten the affordability gains made in recent quarters. A proposed hike in duties on Canadian lumber, from 14% to 34%, as well as tariffs on drywall and other construction materials from Mexico and China, may raise builder costs significantly. These increases could force home prices upward, once again putting affordable new construction out of reach for many.
For more insights on new construction visit realtor.com/research.
Methodology
Realtor.com housing data as of March 2025. Listings include the active inventory of newly built single-family homes and condos/townhomes/row homes/co-ops for the given level of geography on Realtor.com. Realtor.com data history goes back to July 2016.
About Realtor.com®
Realtor.com® pioneered online real estate and has been at the forefront for over 25 years, connecting buyers, sellers, and renters with trusted insights, professional guidance and powerful tools to help them find their perfect home. Recognized as the No. 1 site trusted by real estate professionals, Realtor.com® is a valued partner, delivering consumer connections and a robust suite of marketing tools to support business growth. Realtor.com® is operated by News Corp (NASDAQ:NWS, NWSA]) [ASX: NWS, NWSLV] subsidiary Move, Inc.
Media Contact: Asees Singh, [email protected]
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SOURCE Realtor.com