Why Everyone Is Talking About the New Construction Housing Market

Takeaways:

• Inventory is near five-year highs, partly due to new construction
• Zillow economists are predicting there will be fewer newly built homes in 2026

New construction is playing an increasingly important role in the housing affordability conversation. It’s not just that newly built homes now cost $3.50 less per square foot than existing ones, according to a Zillow analysis. Home builders are also addressing a supply shortage that has driven home values to record highs — by more than 45% in some areas. 

What could that mean for you if you’re looking to buy soon? Here’s what home buyers need to know about the new construction housing market.

More homes are coming on the market, but the pace is slowing

If you’ve been keeping an eye on for-sale listings, you’ve probably noticed there’s more homes on the market now than in the past five years. That’s due, in part, to a surge of homeowners finally listing their homes for sale. It’s also due to builders, who boosted supply at a time when the number of homes for sale shrank to a record low. The effect of this increase in inventory is two-fold.

Zillow Senior Economist Kara Ng says new builds have helped rebalance the market in once-hot markets like Phoenix, Tampa and Austin. "Nationally, the market is the most balanced we’ve had in several years,’’ says Ng.

However, as the pool of buyers shrinks due to affordability concerns, the inventory of unsold homes in August 2025 was the highest it’s been since 2009. This has dampened builder confidence and slowed down the pipeline for future construction. Permits for future single-family homes fell 6.3% in the first half of 2025, signaling a slowdown after a year when builders made up a lot of ground.

Zillow Senior Economist Orphe Divoungy says that more than half of the 50 largest metros are still permitting more new homes than they were before 2020, but that the industry is experiencing a clear loss of momentum.

Pro tip: To find builders in your area, you can search Zillow’s builder directory or filter for new construction homes on the Zillow mobile app and website. 

The South remains the leader in new construction

Most of the building has happened in the Southeast and Mountain West, where there tend to be fewer building regulations and where  construction costs are lower. After huge run-ups in prices in these regions, home values have leveled and even declined in some markets, including Little Rock, Arkansas, Jacksonville, Florida, Austin, Texas and Denver, Colorado. 

The softening of prices has caused builders to pull back, but building remains strong in Idaho, South and North Carolina, Utah and Texas.

New builds are getting smaller

A larger share of new homes are smaller, and consist of less expensive forms of housing, such as condos and townhomes. Even single-family homes and the lots they’re built on got smaller, with the price per square foot for newly built homes and existing homes coming closer together.

A Zillow analysis of 2024 listing data found that the average new construction lot is 1,000 square feet smaller than it was in 2019, while new homes shrank by about 200 square feet over the same period, bringing them closer in size to existing homes. 

Given rising land and construction costs, constructing smaller homes on smaller lots is one way for builders to keep housing more affordable, and to meet any county or city requirements for higher densities to address the nationwide housing shortage.

Builder incentives are becoming more common

As homes nationally are taking longer to sell, price cuts and incentives from builders and sellers of existing homes are increasingly prevalent. 

“Buyers are gaining leverage as more sellers list their homes, but that increase in inventory is also forcing builders to increase incentives for buyers and reduce prices to maintain sales,” says Divounguy.

In June 2025, 37% of builders cut their prices compared to 29% at the same period last year. The average price reduction for new construction in August was 5% compared to 26% for existing homes, with 62% of builders offering some form of a sales incentive

Builders have made their homes more attractive to buyers with incentives like buy-downs and closing cost credits. Other types of incentives include: 

• Paying for closing costs
• Creative financing, including paying for lower interest rates, that lower monthly mortgage costs
• Offering builder warranties
• Upgrading finishes for free or at a discount 
• Price discounts at the start or completion of a development
• Offering “flex cash,” a set amount of money credited to buyers that can be used in a number of ways
• Cutting prices. In August 2025, price cuts on newly built homes averaged about 5%.For a typical U.S. new construction home worth about $407,000 the discount amounts to $20,350.

The incentives help lower the costs, but the price of homes – and the amount of time it takes buyers to save for a down payment – has put home buying out of reach for many buyers. 

The bottom line: there is room for optimism

After years of sellers calling the shots, the market nationally has become more balanced, putting buyers and sellers on equal footing. There are more homes for sale than at any time in the past year, and price cuts for all homes – existing and new construction – are increasingly common.

If you’re unfamiliar with new construction, you can learn more about the types of new construction, and compare new construction against existing homes.

Regardless of whether you’re interested in new construction, existing homes or both, it helps to know how much you can afford to spend on a home. Zillow Home Loans’ BuyAbility℠ tool can give you a personalized real-time estimate of your home buying budget based on your financial circumstance and the latest mortgage interest rates. The estimate changes as interest rates change, and as you update your financial picture.