Housing News

Why Newly Built Homes May Provide Better Deals for Homebuyers

A newly built home may come with more than brand-new appliances and a fresh coat of paint. Many homebuilders are offering financial incentives that could help make purchasing a home more affordable.

“For new home sales, the market can be described as an incentive-driven discount market or a builder-subsidized bypass market,” wrote New American Funding Principal Analyst Ryan Schoen in a new NAF Insights report.

In other words, some homebuyers are bypassing the resale market in favor of builders who are willing to negotiate. This opportunity reflects the different pressures shaping the new- and resale home markets.

For homebuyers, the practical takeaway is to compare monthly payments and builder incentives available today.

Homebuilders have more reason to make deals

The supply of newly built homes is substantially larger relative to the current pace of sales than that of existing homes.

There was a 9.3-month supply of new homes for sale in June, according to the U.S. Census Bureau. The existing-home market had less than half of that, a 4.6-month supply in July, the National Association of Realtors reported.

The difference can give homebuyers more negotiating leverage with a builder.

In August, 63% of homebuilders offered sales incentives, according to the National Association of Home Builders. About 35% of builders reduced prices, with an average cut of 6%.

A builder’s flexibility may show up somewhere other than the advertised price.

“Builders rarely want to slash the ‘sticker price’ of a home because it hurts the value of the neighborhood they are building,” wrote Schoen. “Instead, they give hidden discounts through financial perks.”

Those discounts are typically offered as negotiated incentives that may not be reflected in the recorded sale price. They may include:

• Paying some of the homebuyer’s closing costs
• Buying down the mortgage rate temporarily or permanently. A lower mortgage rate typically leads to lower monthly housing payments
• Offering free or discounted appliance packages
• Including design upgrades at no additional cost

Offers vary by builder, development, mortgage program, and individual home.

Existing home prices remain supported

Homeowners who do not need to move can wait. This limits the number of existing homes available for purchase.

Existing home sales fell 1.7% in July from the previous month, according to NAR. The national median existing home sale price rose 2% from a year earlier to $434,100. July marked the 37th consecutive month of annual price increases.

“The combination of the ‘rate lock-in’ effect, severe affordability disconnect, and the buyer-seller standoff leading to a waiting game between both sides has led to the current conditions where activity is in a drought while home prices remain sticky,” wrote Schoen.

The low turnover rate helps explain why slower sales have not produced broad price declines.

“Until and unless the housing inventory turnover rate rises for the entire market, home prices will continue to be supported in general overall,” wrote Schoen.

For current homeowners, that price support may help preserve the equity they have accumulated. For prospective homebuyers, it reinforces the value of considering new construction alongside existing homes.

How homebuyers can compare builder incentives

The largest incentive may not always deliver the greatest savings. Homebuyers should compare the total cost of each offer, including the mortgage rate, monthly payment, closing costs, homeowners association dues, property taxes, and upgrades.

A mortgage rate buydown could provide more monthly relief than a modest price reduction. Closing cost assistance may be more valuable to a homebuyer who wants to preserve savings after the purchase. Another homebuyer may prefer a lower sale price that reduces the mortgage balance and down payment.

Homebuyers should ask whether an incentive is tied to a preferred lender and compare that offer with financing available elsewhere. A lower advertised rate may come with different fees or loan terms.

A mortgage professional can calculate how the builder’s price, financing incentive, and upgrade package would affect the amount due at closing and the estimated monthly payment. Those figures can reveal which offer delivers the greatest value.