Sales of new homes lose momentum, giving buyers an opportunity

The share of newly built homes for sale is at the lowest level in four years as builders scale back and existing home inventory rebounds.

A year ago, new construction was the rare bright spot in a sluggish housing market — the silver lining that kept sales volumes from sinking even further — but recent sales and construction data suggest its luster is beginning to fade.

New home frenzy has cooled 

After a pandemic-fueled boom in construction, the new home sector is starting to show clear signs of fatigue as demand softens, incentives are deepening and builder sentiment remains relatively pessimistic. 

According to a new report from Redfin, less than 27% of all single-family homes for sale in August were new construction — the lowest level in four years, Redfin researchers noted. Some factors impacting the balance of new and older homes include the steady increase in existing home inventory over the past year and recent upticks in new listings — but new home sales have also slowed.

Sales of newly built homes may still be up compared to last year, but that's largely due to heavy discounting and incentives — not organic demand growth. The report notes that many builders continue to offer attractive concessions, such as mortgage rate buydowns, closing cost credits and free upgrades, but even those perks haven't led to a surge of buyers. 

Builder sentiment, housing starts subdued

Redfin data shows new home prices holding flat or dipping, even after incentives, with buyers having the most leverage in states like Texas, Utah and Florida where new construction is more plentiful. 

Some builders are feeling the effects, according to agents cited in the report.

"The market is oversaturated with new construction, so much so that some local builders are laying off workers — something I've never heard of happening before," San Antonio-based Redfin Premier agent Jesse Landin said. "Builders are hesitant to start new projects because in today's buyer's market, it doesn't make financial sense."

The latest available U.S. Census data paints a similar picture: Housing starts for August fell 6% year-over-year and were down 8.5% from July.

That turnaround is also dampening builder optimism around future sales. According to separate data from the National Association of Home Builders, builder confidence took a hit over the summer, edging up in October as mortgage rates fell, but still well below historical levels. 

'Buyers have the power'

While the new home sector may no longer be the star of the show, it remains a vital barometer of shifting market dynamics — and presents an opportunity for homebuyers. Redfin researchers note that buyers should seize the moment as the overall share of new homes relative to total inventory continues to decline.

"Builders are desperate to sell," Houston-based Redfin Premier agent Roze Swartz said in the report. "Prices are lower than usual, insurance costs are lower than for existing homes, and buyers have the power because there's more supply than demand."