The Curious Case of New Homes Selling for Less Than Existing Ones

For the first time in decades, a peculiar trend has emerged in the U.S. housing market: new homes are selling for less than existing ones. This reversal contradicts the longstanding pattern where buyers typically paid a premium for brand-new properties. As of June 2024, the median existing home sold for $441,500, while the median new home went for just $401,800—a 9% discount that shattered previous records. This phenomenon, which has occurred in seven of the last several months, represents a dramatic shift from historical norms. Since 1968, out of 690 months of housing data, new homes have undercut existing ones only 22 times. During the entire 1990s, this inversion never happened at all. As economists scramble to understand this counterintuitive trend, a deeper look reveals several converging factors behind this market anomaly, none of which suggest Americans suddenly prefer older homes over new construction.

The explanation begins with builder strategies in a challenging market. Faced with high mortgage rates and excess inventory, homebuilders have become aggressive with incentives and price cuts. According to the National Association of Home Builders, 60% of builders were offering sales incentives as of June 2024, with 30% directly lowering their prices. These incentives often include mortgage rate buy-downs, assistance with closing costs, or free upgrades—concessions that effectively reduce the price without changing the official sticker price. Meanwhile, existing homeowners remain more rigid with their asking prices, anchored by the substantial equity they’ve gained (up 49% since before the pandemic) and reluctant to give up their low mortgage rates. This dynamic creates a situation where builders are far more flexible than individual sellers, helping to explain the unusual price inversion in national data.

The physical characteristics of new homes have also shifted significantly, contributing to their lower median price. Since peaking at 2,736 square feet in 2015, the average new home has shrunk by nearly 400 square feet, returning to levels last seen during the Great Recession recovery. Builders have strategically pivoted toward smaller homes, townhouses, and condominiums to enhance affordability in a high-interest-rate environment. While the price per square foot for new construction has nearly doubled from $127 in 2016 to $231 today, the overall smaller footprint pulls down the median sales price. This trend reflects builders’ recognition that smaller, more affordable homes are what today’s market demands, especially for first-time buyers facing significant affordability challenges.

The pandemic-era construction boom has created an inventory imbalance that further drives this price anomaly. As Redfin’s chief economist Daryl Fairweather explains, “Builders overbuilt during the pandemic,” and now they’re dealing with the consequences. Unlike individual homeowners who can choose to stay put with their favorable mortgage rates, builders must move inventory to maintain cash flow and clear their books. This urgency translates into more competitive pricing. The inventory figures tell the story: existing homes have about four months of supply, while new home inventory was more than double that in June. This supply glut forces builders to adjust their pricing strategies, creating downward pressure on new home prices that doesn’t affect the existing home market to the same degree.

Demographic shifts in homebuyer profiles have also influenced these price dynamics. In 1981, the median homebuyer was 31 years old; today, that figure has jumped to 56. This dramatic age increase has transformed what buyers want and need in a home. Older buyers often prefer established neighborhoods with single-story homes and more outdoor space—characteristics more commonly found in existing homes rather than in new developments. New construction frequently features multi-story townhomes on smaller lots, which are less appealing to buyers in their 50s and 60s who may be looking to downsize but want to avoid stairs. This preference mismatch creates additional pressure on new home prices while supporting values in established neighborhoods with the features older buyers seek.

The structure of the homebuilding industry itself has evolved in ways that facilitate this price inversion. Large national builders now dominate the market, accounting for a record 44.7% of all new single-family home closings in 2024—up dramatically from 8.7% in 1989. These large corporations have greater financial flexibility to cut prices or offer significant incentives compared to smaller local builders. Their economies of scale, superior access to materials, and stronger balance sheets allow them to weather compressed profit margins. While most public builders have seen their gross margins decline by 2-5% since 2022, they remain profitable, and homebuilder stocks have outperformed the broader market this year. This concentration in the industry means that the pricing decisions of a few large companies now significantly influence median new home prices, contributing to the unusual discount compared to existing homes.

Economists generally agree that this price inversion is temporary rather than a new normal. As builders work through their excess inventory over the next year or two, the relationship between new and existing home prices should gradually revert to its historical pattern. The fundamental appeal of new construction—with its modern designs, energy efficiency, and absence of maintenance issues—will eventually reassert itself in pricing. However, this unusual moment in the housing market reveals important insights about supply dynamics, builder strategies, and changing consumer preferences. It also represents a rare opportunity for buyers willing to consider new construction, as they can currently access brand-new homes at prices below comparable existing properties—a situation unlikely to persist once market conditions normalize and builders regain pricing power.