New Construction Offers Price Relief Amid Tariff Concerns



In the current housing market, newly built homes are emerging as a beacon of affordability for prospective buyers. According to Realtor.com's Q1 2025 New Construction Quarterly Report, the median list price for new homes has slightly declined year-over-year to $448,393. This decrease has narrowed the price gap between new and existing homes to its lowest level for any first quarter in five years, making new construction an increasingly viable path to homeownership.

"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 addressing affordability challenges by delivering smaller homes at lower prices and offering financial incentives that make monthly payments more manageable. For instance, the average mortgage rate for new construction buyers is approximately 0.5 percentage points lower than for buyers of existing homes (6.1% vs. 6.6%), translating to monthly savings of more than $160 on a median-priced home. This advantage is largely due to builders offering rate buydowns, often through in-house financing or partnerships with lenders.

However, these gains may be short-lived. Proposed tariff increases, including a jump in duties on Canadian lumber from 14% to 34%, as well as new tariffs on drywall and other materials from Mexico and China, could drive up building costs. If implemented, these increases could stall builder momentum and force developers to pass rising costs on to buyers, once again making entry-level new construction less affordable. National Association of Home Builders

The price premium for new construction homes fell to 13.5% in Q1 2025, the lowest for any first quarter since Realtor.com began tracking the metric in 2020. This reflects a 1.3% drop in new home prices from Q1 2023, compared to rising prices in the resale market. New construction now represents 18.5% of active listings, with total new construction inventory 27.4% higher than it was in Q1 2020. Meanwhile, the supply of existing homes remains 6.9% lower than pre-pandemic levels.

Builders are responding to affordability challenges by constructing smaller, more cost-efficient homes, particularly in regions such as the South and West, where land availability supports development.

Despite stronger affordability in the single-family sector, confidence in new multifamily development is weakening, according to the National Association of Home Builders (NAHB). NAHB’s Multifamily Production Index (MPI) dropped to 44, down three points year-over-year. The Multifamily Occupancy Index (MOI) remained high at 82, signaling strong occupancy levels but also a cautious outlook on new starts.

"While occupancy in existing buildings remains strong, multifamily developers are remaining cautious about starting new projects, especially mid/high-rise and condominium projects," said Debra Guerrero, chair of NAHB’s multifamily council. "Construction costs, regulatory barriers, and financing are the main headwinds right now, with some developers also citing uncertainty about tariffs as a reason to be cautious."

As the housing market continues to evolve, staying informed about these developments is crucial for both buyers and industry professionals.

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