But material cost hikes could derail efforts to keep new home prices low
Newly built homes are helping to improve affordability for buyers in today’s high-cost housing market, but proposed tariffs on building materials could put that progress at risk, according to Realtor.com’s Q1 2025 New Construction Quarterly Report.
The report shows that the median list price for new homes declined slightly year over year to $448,393, narrowing the price gap with existing homes to its lowest level for any first quarter in five years. As a result, new construction is increasingly viewed as a more accessible path to homeownership.
“America is short, approximately, four million homes, and new construction is stepping in to fill the affordability gap left by a tight existing home market,” said Realtor.com chief economist Danielle Hale. “Builders are delivering smaller homes at lower prices and often offering financial incentives that make monthly payments more manageable. But looming tariffs on key building materials could limit this much-needed progress and create new cost pressures in the months ahead.”
New construction also offers financial incentives that make homeownership more attainable. The average mortgage rate for new construction buyers is approximately 0.5 percentage points lower than for buyers of existing homes (6.1% vs. 6.6%), translating to monthly savings of more than $160 on a median-priced home. This advantage is largely due to builders offering rate buydowns, often through in-house financing or partnerships with lenders.
However, these gains may be short-lived. Proposed tariff increases, including a jump in duties on Canadian lumber from 14% to 34%, as well as new tariffs on drywall and other materials from Mexico and China, could drive up building costs.
If passed, these increases could stall builder momentum and force developers to pass rising costs on to buyers, once again making entry-level new construction less affordable.
New construction premium shrinks
The price premium for new construction homes fell to 13.5% in Q1 2025, the lowest for any first quarter since Realtor.com began tracking the metric in 2020. This reflects a 1.3% drop in new home prices from Q1 2023, compared to rising prices in the resale market.
New construction now represents 18.5% of active listings, with total new construction inventory 27.4% higher than it was in Q1 2020. Meanwhile, the supply of existing homes remains 6.9% lower than pre-pandemic levels.
Builders are responding to affordability challenges by constructing smaller, more cost-efficient homes, particularly in regions such as the South and West, where land availability supports development.
Weak multifamily developer sentiment
Despite stronger affordability in the single-family sector, confidence in new multifamily development is weakening, according to the National Association of Home Builders (NAHB).
NAHB’s Multifamily Production Index (MPI) dropped to 44, down three points year-over-year. The Multifamily Occupancy Index (MOI) remained high at 82, signaling strong occupancy levels, but also a cautious outlook on new starts.
“While occupancy in existing buildings remains strong, multifamily developers are remaining cautious about starting new projects, especially mid/high-rise and condominium projects,” said Debra Guerrero, chair of NAHB’s multifamily council.
“Construction costs, regulatory barriers, and financing are the main headwinds right now, with some developers also citing uncertainty about tariffs as a reason to be cautious.”
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