New Construction Offers a Boost in Home Affordability, but Tariffs May Stall Progress

Rhea-AI Summary

According to Realtor.com's New Construction Quarterly Report, new homes are becoming more affordable in Q1 2025. The median list price for newly built homes decreased to $448,393, marking a 1.3% decline since Q1 2023. New home buyers are benefiting from mortgage rates approximately 0.5 percentage points lower than existing home buyers (6.1% vs 6.6%), resulting in monthly savings of over $160. The premium on newly built homes has dropped to 13.5%, the lowest first-quarter level since 2020. Among the top 100 U.S. metros, 26 markets showed decreases in both median listing prices and square footage of new homes. However, proposed tariff increases on Canadian lumber (from 14% to 34%) and other construction materials could threaten these affordability gains.

Positive

• New home buyers benefit from 0.5 percentage points lower mortgage rates (6.1% vs 6.6%)
• New construction median prices fell 1.3% since Q1 2023, improving affordability
• New construction premium dropped to 13.5%, lowest first-quarter level since 2020
• New construction listings are 27.4% higher compared to Q1 2020
• 26 major markets showed decreases in both price and size of new homes

Negative

• Proposed tariff increase on Canadian lumber from 14% to 34% threatens affordability gains
• Additional tariffs on construction materials from Mexico and China could raise costs
• America faces a shortage of approximately 4 million homes

Insights

Real Estate Market Analyst

Realtor.com research shows new homes becoming more affordable with narrowing price gaps and lower rates, but potential tariffs threaten progress.

This quarterly report from Realtor.com reveals a significant shift in the new construction housing landscape. In Q1 2025, new homes have become more financially accessible through three key mechanisms: lower mortgage rates, decreased price premiums, and smaller home sizes.

The 0.5 percentage point mortgage rate advantage (6.1% vs. 6.6%) for new construction translates to approximately $160 in monthly savings on a median-priced home - a substantial benefit in today's high-rate environment. This advantage stems from builders' ability to offer rate buydowns through in-house financing or lender relationships, effectively increasing buyers' purchasing power.

The price premium for newly built homes has shrunk to 13.5% over existing homes - the lowest first-quarter level since Realtor.com began tracking in 2020. This narrowing gap results from a 1.3% year-over-year decline in new home median list prices (to $448,393), while existing home prices continue climbing.

Particularly noteworthy is the strategic pivot by builders in 26 major metros to deliver both smaller and less expensive homes, with the most dramatic price reductions in Little Rock (-12.9%), Oxnard (-11.6%), and size reductions in Colorado Springs (-13.8%). This represents a calculated response to affordability challenges through product modification rather than just price adjustments.

The composition of available inventory has also shifted meaningfully, with new construction now comprising 18.5% of active listings - higher than pre-pandemic levels. Compared to Q1 2020, new construction listings have increased 27.4% while existing listings remain 6.9% below pre-pandemic benchmarks.

However, the report flags a significant threat to this progress: proposed tariff increases on Canadian lumber (from 14% to 34%) and other building materials from Mexico and China. These tariffs could substantially increase construction costs, potentially reversing recent affordability gains and limiting builders' ability to continue delivering accessible housing options amid an estimated four-million-home shortage.

• 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, press@realtor.com

View original content:https://www.prnewswire.com/news-releases/new-construction-offers-a-boost-in-home-affordability-but-tariffs-may-stall-progress-302449104.html

SOURCE Realtor.com

FAQ

What is the current median list price for newly built homes in 2025?

The median list price for newly built homes in Q1 2025 is $448,393, showing a slight year-over-year decline.

How much lower are mortgage rates for new construction homes compared to existing homes?

New construction home buyers receive mortgage rates approximately 0.5 percentage points lower (6.1% vs 6.6%), saving over $160 in monthly payments on a median-priced home.

Which U.S. city saw the largest price drop in new construction homes?

Little Rock, Arkansas recorded the largest year-over-year decline in median listing price for new construction, down 12.9%.

How might proposed tariffs affect new home construction costs?

Proposed tariff increases on Canadian lumber (from 14% to 34%) and additional tariffs on materials from Mexico and China could significantly raise builder costs and home prices.

What percentage of active listings are new construction homes in 2025?

Newly built homes make up 18.5% of active listings, higher than levels seen in the first quarter of 2020-2022.