US homebuilders are aggressively slashing prices and offering incentives, leading to a sharp decline in new home prices across the country.
According to the latest data from the Commerce Department, the median price for a new home in the U.S. fell to $400,500 in February, marking a 7.6% year-over-year drop and the lowest level since June 2021. This comes as builders face mounting pressure to make housing more affordable in the face of elevated borrowing costs.
“Builders appear to be building cheaper, and therefore, likely smaller homes,” Conrad DeQuadros of Brean Capital told Reuters, noting that sales have stabilized recently as prices moderate.
The new home market has remained surprisingly resilient despite the Federal Reserve’s aggressive interest rate hikes over the past year. However, the rising costs of homeownership have pushed many buyers to the sidelines, prompting builders to get creative with pricing strategies and incentives.
In addition to outright price cuts, many builders are reducing square footage and stripping out high-end features to bring down price points. They are also offering mortgage rate buy-downs, paying closing costs, and other enticements to lure buyers.
While these tactics have helped stabilize new home sales in recent months, some economists question how long builders can sustain such aggressive discounting before it begins to impact profitability.
“Rate incentives from builders are still able to ease the financial burden for buyers and have made new homes more appealing, but it’s unknown for how long builders can continue to offer such incentives,” Daniel Vielhaber of Nationwide told Reuters.
The supply of new homes on the market has also been increasing, giving buyers more options and negotiating power. As of February, there were 463,000 new homes available for sale, the highest level since November 2022.
With more inventory in the pipeline and builders keen on maintaining sales momentum, housing analysts expect new home prices to remain under downward pressure in the months ahead as affordability concerns linger.
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