No matter what data you examine, the housing market is in a rut. Prices are up, sales are down and fewer people can afford the dream of home ownership.

But for homebuyers, there are two different housing markets. Buyers can look for newly constructed homes, which are more plentiful but often smaller. Or, they can hunt for their ideal home from the limited properties in the existing home market. 

As home prices continue to rise, homebuilders are constructing smaller homes to meet consumer demand. Census Bureau data showed that the median size of a new home is down 12% from its 2015 peak.

“There is a divergence between the two markets in the current cycle, which is fairly rare,” said Lawrence Yun, chief economist at the National Association of Realtors (NAR). “Usually, new home sales and existing home sales move together.”

Existing Home Sales Fall While New Homes Sales Gain Steam

Existing home sales fell for the third straight month in April, NAR data showed, dropping 0.5% from the prior month and down 2% from the same point last year. At a seasonally adjusted rate of 4.0 million, April’s existing home sales volume was the lowest since September.1

Meanwhile, new home sales are ticking higher. In April, new homes sold at a seasonally adjusted annual rate of 743,000, up more than 10% from the prior month.2

Inventory Gives New Home Sales An Edge

In the current market, builders have a key advantage over real estate agents: inventory.

“We don't have so much inventory of existing homes. For new homes, builders can simply build [more,]” Yun said. “So the builders have inventory, Realtors don’t. Consequently, new home sales are rising, while existing home sales still are at cyclical low points.”

Economists measure housing inventory by how many months it would take to sell all the homes currently on the market. As of April, just more than eight months of newly constructed homes were on the market, while there were only 4.4 months of supply for existing homes.

New Home Prices Now In Line With Existing Homes

New home prices are also starting to align with existing home prices, breaking free from their historical trend of being more expensive. In April, the median sale price of a new home was $407,200, about $7,000 less than that of an existing home.

“New home prices generally carry about a 10%, 15% or 20% premium above existing home prices,” Yun said. “[But] builders have been catering to more moderate-income home buyers. They are still building those expensive homes, but they are beginning to focus a little more on FHA borrowers.”

And with prices being nearly even, new home sales could be more attractive to buyers who've been outbid for larger existing homes, said Navy Federal Credit Union corporate economist Robert Frick.