Has the market peaked? Builders cut new home prices to meet demand for cheaper housing

In the second quarter of 2019, the sale prices for new homes fell 0.5% from 2018 levels. This means prices for new homes reached a median of $372,900 in Q2, remaining largely unchanged from the first half of this year, according to data from Redfin.

Although, sale prices for new homes remained stagnant, Redfin indicates that the median sale price for existing homes climbed 3.2% in Q2 to $309,700. This marks the seventh consecutive year of annual price increases.

Redfin chief economist Daryl Fairweather said the moderation of new-home prices is expected and confirms that builders are now shifting their focus toward offering smaller, more affordable homes.

“While this change was a clear and long-needed response to homebuyer demand and tastes amid an affordability crisis and a softening market, it also means that builders are now focused on homes that are less profitable for them,” Fairweather said. “As builders continue to adjust to a less favorable market, along with rising tariffs for building materials and a labor shortage, I expect to see new-home inventory stay low overall. But low mortgage rates and more affordable prices for new homes mean sales could strengthen a bit in the coming months.”

According to the report, sales of new homes crawled forward 0.8% year over year, while existing home sales declined 0.7% in Q2. Notably, supply of new homes retreated 1%, marking the biggest annual decline since the first quarter of 2013.

Despite this drop, Redfin notes that supply of existing homes rose 1.1% in the second quarter, marking the fourth consecutive quarter of increase.

“The small price decline for new homes in the second quarter, along with a 0.7% year-over-year decrease in new listings and a 3.4% annual drop in building permits, signals that the new-home market remained soft in the second quarter,” Redfin writes. 

The image below highlights changes in annual home-sale prices:

Redfin/ Q2 home prices

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