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Buyers are finally finding more discounts on new homes

Buying a new home doesn’t need to break the bank as more buyers are finding discounted properties.

Across the U.S., 25.1% of newly constructed homes had a price cut during the fourth quarter of 2018, according to a new report from real-estate firm Zillow

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That’s a sharp increase from the 19.2% of new homes that were reduced in price before being sold in the first quarter of last year.

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Denver saw the largest share of new homes with price cuts at more than 40% during the fourth quarter.

In some of the markets where new homes discounted the most, however, the properties were hardly a bargain. In San Francisco and Los Angeles, the average price cut on a new home was 8.5%. Nevertheless, the average new home in Los Angeles still cost $2 million, even with a price cut.

Faced with high construction costs, builders chose to construct larger, more expensive properties in a bid to fetch a higher sales price. However, rising home prices have kept many would-be buyers on the sidelines in a trend that shows no sign of stopping thanks to the tight inventory across many housing markets nationwide.

To that extent, Zillow’s report could read yet another sign that the housing market is resting on a shaky foundation as 2019 kicks off.

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But builders aren’t necessarily getting desperate. Indeed, home-builder confidence rebounded from a three-year low this month, according to the results of survey from the National Association of Home Builders. That could be because fewer new homes are getting built these days, which increases the likelihood that they will be sold for a price above asking.

“New home-building inched upward for most of the past few years, but about a year ago permitting activity began to pull back,” said Aaron Terrazas, a senior economist with Zillow. “With fewer new homes in the pipeline, these price cuts may prove to be a fleeting phenomenon.”

Moreover, Terrazas said the price cuts that have occurred recently are less a sign that the homes’ sellers were desperate and more an indication that appraisals were coming in lower than previously expected.