New-Home Prices Drop in 30% of Major U.S. Cities as Premium Dissolves

The price premium on new-construction homes is dissolving as the traditional cost gap between new and existing homes narrows. In the second quarter of 2025, the median listing price for a new home was approximately $450,000, compared to $418,000 for an existing home, according to Realtor.com. However, this premium is no longer consistent across all markets. Last quarter, new home prices fell in 30% of the largest U.S. cities, reflecting a shift in buyer preferences and market dynamics [1].

The decline in new home prices is most pronounced in the South and West, where builders are responding to weaker demand and increased competition from the existing home market by offering incentives and adjusting pricing strategies. In cities like Little Rock, Arkansas, and Austin, Texas, new home prices dropped by 15.6% and 8.5%, respectively [1]. These adjustments are part of a broader trend where builders are making homes more affordable through smaller floor plans and flexible layouts.

One strategy to achieve affordability is "shrinkflation," where builders are reducing the size of new homes without compromising functionality. A July 2024 report from John Burns Research & Consulting found that about a quarter of new homes have been downsized to cut costs. Designers are minimizing hallway space and maximizing usable areas, effectively rearranging functional rooms to optimize square footage [1].

To further attract buyers, builders are offering mortgage-rate buydowns and design incentives. A May 2025 report from the National Association of Home Builders showed that 61% of builders are using such incentives. A full-term buydown allows buyers to lock in a lower interest rate for the entire loan term, while temporary buydowns offer reduced rates for a few years. These programs help offset the impact of high mortgage rates, which have remained near 7% since the pandemic [1].

Devyn Bachman, chief operating officer with John Burns Research and Consulting, noted that incentives are a key driver in the rising sales of new homes. According to her, mortgage-rate buydowns are currently the most effective tool in attracting buyers [1]. However, ICE Mortgage warned that while these incentives provide short-term relief, they could lead to future payment shocks if interest rates remain elevated or reset higher [1].

Realtor.com's Chief Economist Danielle Hale emphasized that in a market still facing a shortage of nearly 4 million homes, affordable new construction is vital to restoring balance. Despite recent slowdowns in housing starts and permits, builders continue to deliver homes at a healthy pace [1]. The narrowing price gap between new and existing homes suggests that affordability is becoming a more decisive factor for buyers.

Nationally, new homes typically list for about $218 per square foot, slightly less than the $226.56 for existing homes [1]. This shift in pricing dynamics is reshaping the housing market, offering buyers more options without compromising value or quality.

Source: [1] The price premium on new-construction homes is dissolving. New home prices dropped in 30% of large U.S. cities last quarter (https://fortune.com/2025/08/11/new-construction-price-premium-housing-market/)