Why New Homes Are Crushing Existing Properties in Today’s Market

Buyers flock to pristine constructions as legacy housing stock gathers dust.

The Modernization Mandate

Smart-home readiness and energy-efficient builds trump outdated electrical systems and drafty windows. New constructions bypass costly renovations with integrated tech suites.

Financial Architecture Shifts

Builder incentives slice through traditional financing hurdles—temporary rate buydowns outperform stagnant existing-home negotiations. Warranty protections shield buyers from surprise repair catastrophes.

The Psychological Edge

Move-in-ready perfection outweighs character claims for time-pressed millennials. Customization options let buyers imprint identity before laying foundation stones.

As institutional buyers vacuum up existing inventory for rentals, new builds represent the last frontier for actual occupants—though whether these cookie-cutter subdivisions constitute 'character' remains debatable among finance purists who still think granite countertops justify 1990s pricing.

Key Takeaways

• New-home sales jumped to an annual rate of 800,000 in August, topping economists' expectations, as buyers took advantage of lower mortgage rates and builder incentives.
• Meanwhile, existing home sales declined slightly in August as prices remained high.
• A recent decline in mortgage rates helped home sales, which economists said could be even better in September if rates continue to fall.

New homes are now more popular than existing homes, due largely to builder incentives and plentiful inventory, new data released this week showed.

Sales of newly-constructed homes in August came in at an annual rate of 800,000, a 20% increase from July’s rate of 664,000. It was the fastest pace of sales since early 2022, economists at Wells Fargo noted in a report Wednesday.

Economists said the surprisingly strong results are likely the result of builder incentives to lower housing costs and a decline in mortgage rates.

“There’s a large pool of Americans sitting on the sidelines who want to buy, and they are waiting for more affordability,” said Heather Long, chief economist at Navy Federal Credit Union. “They are willing to buy when conditions are even a bit more favorable.”

Why This Matters to Home Buyers

The housing market has been mostly stuck due to high prices and limited inventory, but a rise in new-home sales shows that the market could be starting to turn around, especially if mortgage rates continue to decline.

Mortgage rates have declined about three-quarters of a percentage point from the highs around 7% in January, according to Freddie Mac data. The latest decline in borrowing costs has come amid expectations the Federal Reserve could continue to lower its benchmark interest rate.

Even with the decline in mortgage rates, builders have been offering more incentives to MOVE their inventory of new homes. In August, 66% of builders offered special incentives, the most in the post-Covid era, according to the National Association of Home Builders. Incentives include mortgage rate buy-downs, reduced closing costs and credits for housing design changes.

Meanwhile, sales of existing homes have been sluggish—sales fell slightly in August to a seasonally adjusted annual rate of 4 million—as prices remain relatively high. The median sale price for an existing home was $422,600 last month, compared to the $413,500 price tag for the typical new home in August.

Related Education

Buyers also have more new houses to choose from, with data showing a 7.4 month supply of inventory of new houses, compared with a 4.6 month supply for existing homes.

“Buyers are seeing a lot of value in new homes and taking advantage of the unusually high glut of new homes for sale on the market,” Long said.

It could be just the start of improved sales in the housing market, economists said, as mortgage rates in September have continued the decline seen in August.