New homes are now cheaper than existing ones — here’s why

Traditionally, new construction homes cost more than existing homes. However, those prices inverted in 2024 and have lasted through the first half of 2025.

In July 2025, the median price for existing home sales was $422,400, according to data from the National Association of Realtors. Meanwhile, the median sale price for new homes sold in July of this year was $403,800, according to the federal government — a more than $18,000 difference.

Straight Arrow News spoke with Chen Zhao, head of economics research at Redfin, who said the prices between new builds and existing homes are beginning to converge.

Builders cutting prices, homeowners holding firm

One reason is that builders are constructing smaller homes.

According to Federal Reserve Economic Data (FRED), the median size of a new house was 1,970 square feet in June 2020. By January 2025, that number dipped to 1,792 square feet. In July 2025, that number was 1,852 square feet.

Builders are also offering buyers more concessions. Meanwhile, homeowners with existing properties are unwilling to sell at lower rates, even delisting them from the market if they don’t feel they’re receiving offers that reflect their perceived home value.

“What we’re seeing happening right now is that most builders are out there willing to make concessions of various types, including mortgage rate buydowns, or closing costs — you know, credits,” Zhao said. “But a lot of them are willing to just drop the price right now, whereas existing home owners are not.”

And materials to build new homes aren’t cheaper. So why are builders able to offer lower prices? Zhao said it’s because builders have larger profit margins post-pandemic and they’re sitting on a lot of inventory.

“So, according to the Census Bureau’s latest report, there is 9.2 months of supply in new construction right now. So that is a lot. That’s very elevated, compared to typical levels,” Zhao said. “So, builders are very incentivized to move this because even if they have to accept a lower profit margin, that’s better than having that inventory sit with them, because they need that money in order to keep investing in their business.”

Inventory pressures, interest rates and timing the market

Meanwhile, sellers are not as motivated — unless they have a life-changing event forcing them to sell their home.

According to The Kobeissi Letter, 55% of homeowners have mortgage rates below 4% and 21% of homeowners have rates below 3%.

Most homeowners don’t want to lose their lower rates.

Zhao said builders can see what’s happening — they have a ton of inventory, and construction of new homes will cool off. In fact, that’s already happening.

“We’re already seeing that there’s much less construction in the pipeline,” Zhao explained. “So, builders are seeing what’s happening. They know that they’re sitting on too much inventory right now. So, we know that starts and permits are down. And so, if we’re looking into the future, there will be less new construction.”

But this doesn’t mean home prices across the board will drop. Zhao said home prices are currently growing more slowly than inflation.

“We do expect that overall home price growth, for all houses to be pretty flat round, like, you know, 0%, maybe slightly negative, maybe slightly positive, a pretty flat rate, in the near future, probably like towards the end of this year,” Zhao said.

And, in good news for future buyers, the Fed is expected to make rate cuts in September.

For people looking to make a big purchase or put their current home on the market, Zhao said it’s best to do so when everything feels right and is in order, rather than timing a move based on the mortgage market.

“I think that if you are trying to get into the market right now, you need to be looking at, you know, what are my, you know, personal needs? How much can I afford?” Zhao explained. “You don’t need to try to time mortgage rates. You know, timing mortgage rates is something that Wall Street traders do. It is very, very difficult to do. It’s much better just to find the house that is right for you. Make sure you can afford it with a little bit of cushion. Because the economy is getting weaker right now.”