Look, what Zillow is reporting here is really interesting because it flips what we've seen for years. For a long time, new construction commanded a premium over existing homes, but as of this July, that script has completely flipped. According to HousingWire's coverage of the Zillow data, new homes are now selling for less per square foot than resale homes nationally. We're talking $205 per square foot for new construction versus $212 for existing homes. That's a pretty significant shift from what was normal just recently.
The reason this is happening comes down to supply and demand, plain and simple. Builders are sitting on a lot of inventory right now, with nearly ten months of supply available in the market. That's way more than the healthy six-month level we saw a couple years ago. To move all those homes they've built, especially in the Sun Belt where construction really boomed after the pandemic, builders are offering steep discounts and incentives that sellers of existing homes can't or won't match. The report notes that median new home prices have dropped significantly and are now near five-year lows, while existing home prices remain stubbornly high.
Here's what's important to understand though: this discount isn't happening everywhere equally. In supply-constrained areas, particularly in the Northeast and Midwest where building is harder to do, new homes still cost more per square foot than resale homes. The biggest discounts are concentrated in those high-growth Sun Belt markets where tons of new homes came online during the pandemic boom. So your location really matters when it comes to whether new construction or existing homes make more financial sense.
The economics matter differently for different builders too. According to the article, builders with healthy profit margins have more flexibility to offer discounts without going underwater, while those operating on thinner margins have to be more careful. Some are even adjusting what they build and sell to protect their bottom lines. The pressure on affordability is real across the board though, with renting still cheaper than buying in many places and mortgage qualification becoming a barrier for a lot of potential buyers.
What I am seeing locally here in the Bay Area is that we're in a different category than those Sun Belt markets. Our supply constraints and land limitations mean new construction still typically commands a premium, which is a real consideration for East Bay and Fremont buyers trying to decide between new builds and existing homes. The nationwide trend is interesting context, but our regional market dynamics are really what should guide your decision about whether to pursue new construction or look at what's available on the resale market.
