Builders cut prices and offer new home incentives as affordability gap shrinks

The affordability gap between buying newly constructed homes and existing homes declined in the third quarter as builders look to capitalize on the uptick in demand with incentives.

The price per square foot for a new-construction home is lower than the price for an existing home in the South and West in particular, according to Realtor.com’s third quarter report on new construction. 

Both the South and West have more supply of new construction and higher price reductions, whereas the Northeast and Midwest have fewer new-construction homes listed with more modest price reductions.

“Builders have a good amount of spec inventory that they are trying to move right now as the market cools down both seasonally and in terms of price and sales growth,” said Joel Berner, senior economist at Realtor.com. “Quick move-in inventory is readily available, and builders are cutting prices and offering incentives to get it sold.”

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Housing inventory in the South and West has mostly returned to pre-pandemic levels due to builders delivering new construction, while newly built homes have a single-digit price premium and all homes have higher rates of price reductions than other regions, the report found.

By contrast, new construction is at a premium in the Northeast and Midwest, and those regions had some of the hottest and most seller-friendly housing markets in the country.

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The median price per square foot for new builds was $200 in the South and $292 in the West, while it was $353 in the Northeast and $227 in the Midwest, according to the Realtor.com analysis. For existing homes, those figures were $204 in the South, $320 in the West, $271 in the Northeast and $168 in the Midwest.

“Now, new-builds are price-competitive with existing homes and actually more affordable on a per-square-foot basis,” Berner said. “In a market where affordability is the top concern, new homes are priced to sell, and they also offer attractive financing that lowers the burden of the two most onerous parts of buying a home: the down payment and the monthly payment.”

Price reductions are at an all-time high for newly built homes, with 15.1% of listings lowering their prices in the third quarter of 2025, the report found. Those reductions are less common in regions with more constrained housing markets.

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In the South and West, where there is more supply, price reductions are more common, with 16.6% of new builds in the West and 15.9% of those in the South having their prices lowered. In the Northeast, just 7.8% of new builds had price reductions, and just 12.2% in the Midwest, according to the report.

A recent Realtor.com study found that mortgage rate buydowns and below-market mortgage rates are a common promotion to attract buyers to new construction given elevated mortgage rates.

In the third quarter of 2025, the report showed that the average 30-year mortgage rate on the deed of an existing homebuyer was 6.26% – whereas for new home buyers the average 30-year rate was 5.27%. Mortgage rates being 99 basis points lower for new home buyers in the third quarter is a jump from the prior two quarters, which were 51 and 54 basis points, respectively.

Down payments on new home purchases are also decreasing despite new-construction buyers historically making larger down payments than those buying existing homes.

In the most recent quarter, new home buyers put down 15.7% of the purchase price while buyers of existing homes put down 17.8%. For comparison, in the third quarter of 2022, new home buyers were putting down 18.3% and existing home buyers put down 17.2%.