Prices of new homes plunge as supply piles up

Builders in Dallas are using various methods to lower prices

Prices of new homes plunge as supply piles up

The annual sale prices for newly-built homes has dropped for the first time in seven years, according to a report by Redfin.

A newly-constructed home now costs a median of $363,000, down 1% in the first quarter. There are also more choices in the market, as supply of new homes grew 4.2% in Q1 2019, which is the fourth straight period of increases. However, the sales of these homes fell 3.1% year over year, marking the third consecutive quarter of declines.

Redfin previously projected that falling demand for new homes would result in a slight downturn in new-home sale prices and sales, as well as the increase in supply. Demand was cooling in the second quarter of 2018 as builders began lowering prices and offering incentives to agents and interested buyers.

In Dallas, dropping prices became a strategy to sell some of the new-home inventory that has been accumulating in the city. Connie Durnal, a Redfin agent in Dallas, said builders have been reducing lot sizes and limiting upgrades in unreserved homes to lower new-home prices in her area.

"The market for new homes is shifting," Durnal said. “Builders are readjusting their pricing to be more competitive, both in low-end and high-end homes. Some of my clients have been able to buy new homes at prices we never could have negotiated a year ago. One reason builders are able to offer homes for lower prices is because in some cases, they're building on smaller lots farther away from the city center, like in the northern suburbs. They're also reducing monetary incentives such as design center credits and built-in blinds in favor of offering the home for sale at a lower price. That way, builders end up netting the same amount of money on a sale but homebuyers may feel that they're getting a better price."

"It might seem like the solution to the housing shortage is straightforward—just build more homes—but in many California metros construction workers aren't paid enough to cover their own housing costs, which makes attracting construction workers to build those homes quite difficult," said Redfin Chief Economist Daryl Fairweather. "To solve the housing crisis, the government needs to step up and subsidize new construction. Some voters might find it distasteful to give wealthy developers subsidies, but those subsidies could come with strings attached like higher pay for working-class construction workers."