Builders are slashing new construction prices; here’s where they’ve been cut the most

Aly J. Yale
The Mortgage Reports contributor

Buying new gets more affordable

Thanks to increasing inventory, slowing home value growth and last year’s jumps in mortgage rates, price cuts are becoming the norm when it comes to new construction. In fact, according to new data, 25 percent of new homes last quarter saw a price reduction.

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Price cuts continue rising

According to new research from Zillow, builders are increasingly reducing prices on newly built homes. In the fourth quarter of 2018, 25.1 percent of new construction homes saw a price cut. A year ago, only 19 percent of new homes were reduced in price.

Increasing new home inventory, slowing home value growth and rising interest rates all contributed to this jump, according to Matthew Spekman, an economic data analyst at Zillow.

“The cumulative build-up in home values and rising mortgage rates eventually caused housing demand to fall,” Speakman said. “Teamed with increases in housing supply, those factors appear to have impacted the housing market for both buyers and sellers. As home value growth slows, the prospect of buying a new home becomes less attractive, because the return on investment becomes less of a sure thing.”

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Where new home prices are cut the most

Denver saw the biggest share of price cuts on new homes last quarter, with more than 40 percent seeing a price reduction. The share of price cuts jumped 19 percentage points over the year.

Other cities with high shares of price cuts were San Francisco (37.2 percent), Dallas (34.4 percent), Indianapolis (35.3 percent), St. Louis (33.2 percent), Tampa (32.3 percent) and Seattle (31.8 percent).

How to avoid new construction home problems

Though it doesn’t claim one of the highest shares of price cuts, Las Vegas is seeing an increase in reductions on new properties. Price cuts jumped from 8.1 percent in Q1 of last year to 27.3 percent in Q4.

“Not all markets experienced this phenomenon, however. In Pittsburgh, San Antonio and Austin, Texas, price cuts on newly constructed homes were less frequent at the end of the year than they were at the beginning,” Speakman said. “Austin saw a sharp increase in this rate during the middle of the year, but it had fallen again by year’s end.”

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Verify your new rate (Apr 5th, 2020)