• Housing costs have surged more than 50% since the pandemic, but the traditional price gap where new-construction homes cost significantly more than existing homes has narrowed. There are notable price drops and incentives, especially in the South and West, making new homes more affordable. Furthermore, new homes often provide better value per square foot, and builders tend to offer incentives.

No matter the type of home you buy, housing has become more expensive over the years. Just since the pandemic, home prices are up by more than 50% and mortgage rates continue to hover near 7%.  

While new-construction homes have historically been more costly than buying an existing house, that trend is changing in some markets. Last quarter, year-over-year median listing prices for new builds dropped in 30 of the largest U.S. metros, according to an Aug. 7 Realtor.com report. 

Historically, the price-premium of new-construction homes has largely been driven by costly modern amenities and customization, rising materials and labor expenses; and strong demand for more housing. The median listing price for a new home in the second quarter of 2025 was about $450,000, while the median existing-home price was roughly $418,000, according to Realtor.com. 

But price drops have been prominent in the South and West as builders try offering more affordable options through incentives. Meanwhile, increased competition on existing homes and weaker buyer demand has driven down new-construction prices, according to Realtor.com.

“In a market still grappling with a shortage of nearly 4 million homes, affordable new construction plays a critical role in restoring balance,” Realtor.com Chief Economist Danielle Hale said in a statement. “Even with recent slowdowns in starts and permits, builders continue to deliver new homes to the market at a healthy pace.”

Although the overall home price for a new build is higher than an existing home, buyers can get a better price per square foot, Realtor.com data shows. Nationally, new builds typically list for about $218 per square foot, compared with $226.56 for existing homes, according to Realtor.com.

The top five markets where new-construction home prices dropped year-over-year last quarter, according to Realtor.com, include:

• Little Rock, Ark. (-15.6%)
• Austin, Texas (-8.5%)
• Wichita, Kan. (-7.9%)
• Jacksonville, Fla. (-7.8%)
• Cape Coral, Fla. (-7.4%)

Shrinkflation is also a factor at play making new homes more affordable in some markets. Builders are making homes smaller, and therefore more affordable, for new buyers. A July 2024 report from John Burns Research & Consulting showed about a quarter of new homes were downsized to cut costs. To make smaller homes more enticing and practical, builders have cut the number of hallways and increased flex space in the home.

“Instead of shrinking rooms to reduce overall home size, a common tactic among our architectural designers was to eliminate unnecessary circulation space,” JBREC wrote in its US Residential Architecture and Design Survey report. “Essentially, we’re Tetris-ing the functional rooms together, avoiding wasted square footage on non-functional areas like hallways.”

Builders offering incentives

To entice home buyers to go with a new home, builders are offering incentives like mortgage-rate buydowns and design upgrades to offset drops in demand from inflated costs. 

Devyn Bachman, chief operating officer with John Burns Research and Consulting, previously told Fortune these enticements were the “number one” driver for the rising new-home sales.

The mortgage-rate buydown, the industry term for discounted mortgage rates, is the most “desired and most effective” incentive offered in the new-home market today, she said. 

There are several types of mortgage-rate buydowns, including full-term buydowns and temporary buydowns. With a buydown, builders pre-pay the difference in interest between the market mortgage rate and the mortgage rate they’re offering. A full-term buydown would last the entirety of the loan, while temporary buydowns may last for only a few years. A May 2025 report from the National Association of Home Builders shows 61% of builders are using sales incentives like buydowns.

Buydowns are an enticing option for eager prospective homebuyers who are closely monitoring mortgage rates, but have been disappointed by the stubbornness of high interest. ICE Mortgage’s Monitor report for July showed more than 8% of borrowers financed homes with adjusted-rate mortgages (ARMs) or temporary buydowns last year, which reduced monthly payments in the first years of the loans. 

However, ICE Mortgage warned that “while these loans provide short-term relief, they may introduce future payment shock, particularly if interest rates remain elevated or reset higher.”

This story was originally featured on Fortune.com

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• James Jannard, the billionaire founder of Oakley, has re-listed his Beverly Hills megamansion for $65 million, down from the original $68 million price listing from June 2024. Despite the price drop, Jannard stands to make a significant profit since he purchased the property for $19.9 million in 2009. This trend of wealthy sellers, including Jannard, dropping prices highlights a broader market correction where luxury buyers prioritize value and long-term security over vanity pricing.

Even the wealthiest Americans are contending with today’s housing market. Take James Jannard, the billionaire founder of luxury eyewear and apparel brand Oakley, as an example. 

Jannard, who’s worth an estimated $1.3 billion according to Forbes, just re-listed his Beverly Hills megamansion for an eye-popping $65 million. Still, that’s a drop from the $68 million he originally listed it for in June 2024. 

Getty Images—Lee Celano/WireImage for Oakley

He’s fallen victim to a challenging trend in the luxury housing market where many of the country’s most lavish and expensive homes are being priced too high when they hit the market. And now, Jannard stands to lose out on the proceeds he was expecting when he first listed the house.

For what it’s worth, Jannard paid $19.9 million for the property in December 2009, so even if he manages to find a buyer at the $65 million asking price, he’ll make a pretty penny for the sprawling five-bed, nine-bath concrete megamansion that stretches more than 18,000 square feet and nearly two acres in one of the most sought-after neighborhoods in Los Angeles. Orange County-based luxury real-estate firm The Altman Brothers represented the listing last year.

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The current listing agent on the property is Aaron Kirman with Christie’s International Real Estate, who has several listings of more than $100 million in the Los Angeles area. Kirman and Jannard didn’t immediately respond to Fortune’s requests for comment about the property.

Other ultra-rich home sellers have recently been forced to drop their listing prices. In May, Jennifer Lopez and Ben Affleck dropped the price of their $60 million Beverly Hills mansion by $8 million, and last year, billionaire media mogul Rupert Murdoch slashed the price of his Manhattan penthouse by nearly 40% to $38.5 million.

The housing market factors affecting sellers

While we’re not fully out of a seller’s market, the tides have begun turning in favor of buyers as listings stay on the market longer and price cuts become more common, according to Realtor.com.

For that reason, price drops aren’t surprising, especially in the saturated Los Angeles luxury market where buyers have more leverage, Anthony Luna, CEO of LA-based real-estate advisory Coastline Equity, told Fortune.

“Square footage and celebrity status don’t justify inflated pricing anymore,” he said. “Buyers want smart design, upgraded systems, and long-term value.”

The mansion tax in LA, which applies an additional 4% tax to property sales of at least $5 million and a 5.5% tax for properties north of $10 million, further complicates real-estate sales and pricing. The cost of the tax, which is typically paid by the seller, is separate from a home’s sale price and can be a “massive amount of money,” Selling Sunset star and Oppenheim Group agent Emma Hernan previously told Fortune. She also described it as a “nightmare” for sellers and agents alike. 

Hernan said she warns her clients about the mansion tax before they prepare to sell. Take a $5 million home, for example. The seller would have to pay an extra $200,000 they “didn’t really factor in when they bought the home because the mansion tax wasn’t in play,” Hernan said.

The trend of luxury-home price drops like that of Jannard, Murdoch, and Lopez say something bigger about the housing market: a larger correction, Luna said. 

“The luxury market is no longer about vanity. It’s about value and security,” he said. “Buyers are doing the math, and they’re calling the bluff.”

This story was originally featured on Fortune.com

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