New homes flood market as existing homeowners stay put

New construction homes are taking up a larger-than-usual share of the for-sale market, reaching a level nearly double the pre-pandemic rate.

One-third (33.4%) of single-family homes hitting the market in the first quarter were brand-new construction projects, according to a new report from Redfin. That share is essentially unchanged from a year ago and just shy of the record 34.5% peak set in early 2022.

But perhaps more striking, the share of new homes in the for-sale mix was nearly double pre-pandemic levels when such residences claimed around 17% of total supply on average.

Redfin attributed this surge in new home listings to two main factors.

First, homebuilders rapidly ramped up production to capitalize on the work-from-home migration and ultra-low mortgage rates fueling red-hot housing demand. While off their frenzied peak, single-family construction starts were higher than pre-COVID levels.

Second, the supply of existing homes for sale has dwindled as homeowners cling to their low mortgage rates secured during the pandemic, opting not to sell and take on a new loan with higher interest rates.

Read more: April housing starts: Real estate industry reacts

“Buyers are having a hard time finding single-family homes in their budget because not many homeowners are letting go of their houses,” said Nicole Dege, a Redfin Premier agent in Orlando, Fla. “Builders have a better understanding of the current market, so they’re pricing fairly, offering mortgage-rate buydowns and providing other concessions to attract buyers.”

While the overall supply of homes for sale has increased slightly from last year’s historic lows, the share of newly built homes remains elevated. This is partly due to builders working through a backlog of homes started during the pandemic boom.

The increased availability of new homes offers a potential benefit for buyers struggling to find affordable existing homes. However, the high prices of new homes and the elevated mortgage rates present ongoing challenges for many prospective buyers.

In March, there were 8.3 months of supply for new-construction homes compared to only 3.2 months for existing homes, indicating that while new homes are more readily available, they may not be moving as quickly due to affordability concerns.

The Redfin report also noted that while some markets, like Las Vegas, have experienced a cooling down with sellers offering concessions and negotiating on price, others, like San Jose, California, remain highly competitive, with most homes selling above asking price.

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