Builders are increasingly cutting prices on new homes

Home shoppers may be able to find a better deal on a new construction home than they could a year ago. A new Zillow analysis has found that price cuts were more common in the fourth quarter of 2018 than in the first quarter.

Across the country, 25.1 percent of new construction homes had a price cut in the fourth quarter, compared with 19.2 percent of new homes in the first quarter of the year. This mirrors a trend seen in the overall housing market, with price cuts becoming more common.

Eleven percent of buyers last year bought a new construction home, according to the 2018 Zillow Group Consumer Housing Trends Report. For many of them, everything being new was a top reason for buying a new construction home instead of an existing home. More than a third of new construction buyers also felt it represented the best value for their money – and they might be getting even more value now.

Buyers were most likely to find a price reduction in Denver, where 40.3 percent of new construction homes had a price cut in the fourth quarter of the year. At the beginning of the year, just 21.3 percent of newly built homes had a price cut. In Austin, price cuts were less frequent at the end of the year than they were at the beginning.

New homes in San Francisco and Los Angeles saw the biggest price reductions in the fourth quarter, at 8.5 percent. However, these markets are also two of the most expensive for new construction homes. The typical new home with a price cut in Los Angeles cost $2 million even after its price dropped.

"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 Zillow Senior Economist Aaron Terrazas. "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. 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."

New construction homes are often more expensive than existing homes, and the upper price range of homes has seen more of a slowdown than the more affordable sector of the market, as demand for affordable housing keeps pressure on prices. Home value appreciation for homes in the most expensive third of the market is growing at about half the pace of the most affordable third of the market. Higher-valued homes were also more likely to have a price cut than the most affordable homes, according to previous Zillow research.