For the first time in years, the price gap between newly built homes and existing homes is narrower than ever—and in some markets, the typical resale home is actually more expensive than a new build. A mix of builder price cuts, widespread incentives and smaller home sizes has brought new-home pricing more in line with resale values, creating a potentially unusual buying window for prospective home buyers.
But challenges persist in the new-home market. Overall, “2025 was a disappointing year for newly built single-family homes,” acknowledges Robert Dietz, the chief economist at the National Association of Home Builders. “We entered the year expecting relatively flat conditions, but with a mix of policy headwinds and economic opportunities, single-family home construction fell by about 7%. Builders consistently pointed to ongoing housing affordability challenges, along with supply side issues like a persistent skilled labor shortage.”
So, what lies ahead for the new-home market and for home buyers? Dietz shares his insights.
What’s your outlook for the new home market for 2026?
We are starting to see some modest improvements. One of the biggest tailwinds is the Federal Reserve’s easing [of its short-term interest rates] late in 2025. While the Fed doesn’t directly control mortgage rates, its actions matter a lot on the supply side—particularly for builders’ financing costs. About two-thirds of home construction is done by smaller, private builders who rely on bank loans to purchase land, materials and pay workers. When the Fed lowers the federal funds rate, it directly reduces the interest rates on construction and development loans. That’s good news for builders, inventory and ultimately for home buyers and renters.
For 2026, we’re forecasting about a 1% increase in single-family home building and a similar 1% gain in new home sales. Existing home sales should rise more sharply as inventory improves, but many of the same challenges—policy uncertainty, lingering tariff effects and the broader housing deficit—will remain.
Builder incentives have been making headlines and are helping to lower the costs for home buyers. Tell us more about what type of incentives builders are offering.
Incentives are very elevated right now, and that’s good news for buyers. About 40% of builders cut prices in December, with average reductions around 5%. Nearly two-thirds are also offering other incentives.
One of the most common tools—especially among larger builders—is mortgage rate buydowns. Builders are using their financial resources to lower buyers’ mortgage rates for the first two or three years, helping to ease monthly payment pressures. Other incentives include amenity upgrades and closing cost assistance, though there are limits to how much builders can offer. Still, it’s one of the industry’s main ways of responding to ongoing affordability challenges.
Historically, new homes have been more expensive than existing homes. But is that changing?
This is one of the real oddities in today’s data. Right now, the median resale home is actually more expensive than the median newly built home. That’s only happened a handful of times over the past few decades.
Typically, new homes carry a 10% to 15% price premium because they offer more amenities, lower maintenance costs and newer systems. But today’s builder incentives—combined with more construction happening in lower-cost areas—have flipped that dynamic.
It’s also a sign of the larger structural housing deficit. Even with inventory increasing in many markets, the housing stock simply hasn’t kept pace with population growth. That imbalance continues to show up in prices.
You’ve often said we need to “build our way out” of the affordability crisis. What does that look like?
The only long-term solution to housing affordability is more supply—more single-family homes, more multifamily units, more homes for sale and for rent. A clear indicator of the shortage is that nearly 20% of young adults now live with their parents. Historically, that figure was closer to 10%. That doubling is a direct reflection of the housing deficit we’re facing.
One area that’s seen growth on the construction side is townhomes. Why are they gaining traction?
Townhomes have been one of the bright spots in an otherwise challenging market. Today, about 18% of single-family construction consists of townhomes—up from less than 10% a decade ago.
They offer what we call “light-touch density”: a smaller lot, shared walls but still a front door and a path into homeownership. Demand is strong, particularly among younger buyers looking for walkable communities. The challenge is on the supply side—many zoning laws still limit this type of development.
We see real opportunity in redeveloping underused properties, like dying shopping malls, into mixed-use communities with apartments and townhomes. That kind of redevelopment could be a big part of the future.
Are builders also reducing costs by building smaller homes?
Absolutely. The median new-home size has been trending downward for about a decade. There was a brief post-COVID bump due to the “Zoom room” phenomenon, but overall, homes are getting smaller as builders respond to affordability pressures.
Between smaller lots, more townhomes and reduced square footage, builders are actively trying to right-size homes for today’s buyers and budgets—while also working with policymakers to bring costs down further.
Finally, what trends are you watching most closely in 2026 that could impact the new-home market?
Geography is a big one. Markets like Texas and Florida have cooled after years of rapid growth and some cyclical overbuilding. Meanwhile, we’re seeing pockets of strength in the Midwest—places like Columbus, Ohio, Indianapolis and Kansas City.
These markets remain more affordable, are close to major universities, and are well positioned for AI and tech investment, where managing energy and heat costs matters. In fact, single-family home construction in the Midwest was already up in 2025, even as it declined nationally. We expect that outperformance to continue into 2026.
