Better Deals for New Homes?

New homes are increasingly being listed with price cuts according to a recent Zillow analysis that found price cuts for newly constructed housing was more common in the fourth quarter of 2018 than in the first one.

More than a quarter of new homes had their list price cut at least once in Q42018, compared with 19.2 percent in the first quarter of the year. And the trend wasn't restricted to new homes. The analysis found that 16.3 percent of all listings experienced a price cut in November 2018.

The analysis put this growing trend down to slowing home value growth, rising interest rates, and increased inventory especially in major metro areas. It revealed that the nation’s median home was worth almost 1.5 times (49.8 percent) more today than it was at the height of the recession—although "the growth rate of home values has slowed in recent months."

Mortgage rates also rose in 2018 after spending five years at historically low levels, the analysis noted. That, along with an increase in for-sale housing supply towards the end of the year "eventually caused housing demand to fall."

"More newly built homes are seeing their list prices drop, but the size of those price cuts has been remarkably steady which suggests that the trend we are seeing is being driven more by price discovery than by desperate sellers," said Aaron Terrazas Senior Economist at Zillow.

Regionally, the analysis found that buyers were more likely to find a price reduction in Denver where 40.3 percent of new homes saw a cut on their listing price in Q4 2018. On the other hand, cities like Austin saw fewer price cuts towards the end of 2018 than at the beginning of the year.

However, some of the hottest housing markets in the country saw the biggest price cuts on new homes, the analysis revealed. They included San Francisco and Los Angeles that saw price reductions at 8.5 percent of the listed price. New homes in these cities cost around $2 million even after these cuts.

"The housing market cooled in late 2018, particularly at higher price points and in pricier communities where new construction has clustered in recent years. Facing high and rising construction costs, builders have few options but to target upmarket while homebuyers are increasingly squeezed by tight affordability and rising interest rates," Terrazas noted. "But the trend could be short-lived. New home building inched upward for most of the past few years, but about a year ago permitting activity began to pull back. With fewer new homes in the pipeline, these price cuts may prove to be a fleeting phenomenon."