Builders Cutting Prices to Stay Competitive

Blog posted On February 05, 2019

With the Spring buying and selling season on the horizon, predictions are already rolling in.  2018 marked an overall slowdown for housing, after several years of rampant activity.  However, Zillow Research found that some home builders are starting to lower prices on newly constructed homes, to stay competitive in their markets.  The study found that 25.1% of newly constructed homes experienced a price drop in Q4 of 2018, up from 19.2% in Q1 of 2018.  Home shoppers looking to buy a new home in 2019 may be able to get a deal, depending on where they are shopping.

Zillow found three major factors influencing builders to lower prices: home value appreciation, rising mortgage rates, and an increase in for-sale inventory. 

Most homes have steadily appreciated since the Recession.  Zillow reports the nation’s median home was worth almost 1.5 times (49.8%) more in 2018 than during the Recession.  Rising home values are good for homeowners but put a strain on prospective buyers saving for increasingly larger down payments.  Some first-time home buyers are unaware of the down payment assistance options available to them.  There are over 2,500 down payment assistance programs nationwide to help home buyers.  

Last year, the Federal Open Market Committee (FOMC) raised the federal benchmark interest rate four times and mortgage rates have also started to rise.  To offset the higher cost of borrowing, some home builders or home sellers are lowering the asking price on their homes for sale.  

As home buying has slowed down, home builders have had a chance to replenish housing inventory.  With more homes on the market, some home builders are cutting prices to stay competitive.  Busy housing markets like Denver, CO and San Francisco, CA are experiencing the most widespread price cuts on newly constructed homes.  Denver saw prices drop on 40.3% of newly constructed homes for sale followed by 37.2% in San Francisco. 

If you are looking to buy a newly constructed home in 2019, you may be looking at a lower price, especially if you are shopping in a busy market. 

Sources: Zillow