New Construction Offers a Boost in Home Affordability, but Tariffs May Stall Progress

Core Insights - New homes are becoming more affordable in the current housing market, with the median list price for newly built homes decreasing to $448,393 in Q1 2025, the lowest price gap with existing homes in five years [1][4] - The construction of smaller homes and lower mortgage rates for new home buyers are contributing to this affordability trend [1][3] Market Dynamics - The U.S. is facing a shortage of approximately four million homes, with new construction helping to bridge the affordability gap left by a tight existing home market [2] - Builders are focusing on delivering smaller homes at lower prices, often providing financial incentives to make monthly payments more manageable [2][5] Mortgage Rate Trends - Buyers of newly built homes are securing mortgage rates about 0.5 percentage points lower than those purchasing existing homes, translating to over $160 in monthly savings on a median-priced new home [3][9] Price Premium Analysis - The premium on newly built homes has decreased to 13.5% in Q1 2025, the lowest since tracking began in 2020, due to a 1.3% decline in new home prices compared to rising existing home prices [4][9] - Newly built homes now account for 18.5% of active listings, which is higher than during the pandemic years [4] Regional Insights - Among the 100 largest U.S. metropolitan areas, 26 markets have seen year-over-year declines in both median listing price and square footage of newly built homes, particularly in the South [6][7] - Notable price drops include Little Rock, Ark. with a 12.9% decrease, and significant reductions in Colorado Springs, Colo. and Oxnard, Calif. [7] Future Challenges - Proposed tariffs on key building materials, such as an increase in duties on Canadian lumber from 14% to 34%, could threaten the affordability gains achieved in recent quarters [8]