Tie in the US Real Estate Market: New Constructions and Existing Properties Almost on Par

In the current U.S. real estate market, the prices for newly built homes and existing homes are converging, which is notable even for industry experts. In August, the median sales price for new homes was $420,600, almost identical to the $416,700 for existing homes. On an annual basis, the price difference between new and used homes is the smallest it has been since the 1980s. This is due to a combination of two main factors: strong construction activity and a limited availability of existing homes due to higher mortgage rates. As Robert Dietz, Chief Economist of the National Association of Home Builders, aptly points out, the prices of the two markets converge when the supply of existing homes becomes scarce. Currently, about 1.35 million homes are for sale – more than last year but still far fewer than a decade ago, which is also due to the so-called 'rate lock-in effect.' Many homeowners are reluctant to sell their homes because they enjoy low rates on existing mortgages. Meanwhile, new constructions have become a larger part of the available housing supply, as builders are actively attracting buyers with discounts and other incentives such as free upgrades or mortgage rate reductions. Odeta Kushi, Deputy Chief Economist at First American Financial Corporation, emphasizes that more flexible pricing models and incentives are further fueling the sale of new homes. William Zhang, a real estate agent from Texas, reports high demand for new builds, even if they are somewhat outside city centers. Buyers are attracted by the appealing prices and the opportunity to lower interest rates. The southern states, in particular, are fostering construction activities with more available land and flexible zoning regulations. Previously, new builds were often 16% more expensive than existing homes—a premium for modern amenities and better energy efficiency. However, TD Bank economist Admir Kolaj suggests that the price parity is likely to remain until 2025. Only an increase in the supply of existing homes could restore the balance in the long term. Lastly, developments like those in Hesperia, California, offer hope for a reassessment of buyer preferences. John Ohanian from DMB Development emphasizes that the demand for energy efficiency and lower maintenance efforts could further support the trend towards new builds.