In one of the country's fastest-growing counties, a brand-new home costs less per square foot than a 30-year-old one. Understanding why reveals just how supply dynamics, financing, and land costs shape the housing market.
Wake County · 2024
The new-home discount, at a glance
Something strange is happening in housing. Across hot Sunbelt markets, brand-new homes are selling for less per square foot than their older neighbors. Wake County, NC — home to Raleigh and the Research Triangle — saw a 12% discount for new homes in 2024. Zillow Research found $200/sqft premiums for existing homes in some markets.
This defies conventional wisdom. Construction costs are sky-high. Buyers consistently prefer newer homes. So why is new construction trading at a discount?
Using historical sales data from HousingWeaver for Wake County — one of the fastest-growing counties in America and a microcosm of Sunbelt dynamics — we find three forces behind the paradox:
- Uneven impact on home prices. Builders ramped production significantly, cooling the relative new home premium — but not the price of existing homes.
- Interest rate shock & market segmentation. Soaring rates locked existing owners in place while giving well-capitalized builders the flexibility to discount and capture share.
- Location mismatch. New construction landed disproportionately in peripheral areas with fewer regulatory barriers — not the high-demand submarkets where price pressure is strongest.
Three forces behind the paradox
What the rest of this post unpacks
~17K homes/year permitted since 2021, up from a pre-pandemic ~10K baseline.
Owners locked into 3% mortgages stayed put; builders held the discounting flexibility.
New construction landed in cheaper, peripheral submarkets — not where prices ran hottest.
Read on for the evidence behind each.
The Premium Turned Discount
The new home price premium isn't static. As the chart below shows, it declined steadily from 1990, neared zero during the early-2000s recession, and climbed again post–Great Recession.
Then the pandemic hit — and the premium didn't just decline. It cratered. By 2024, new homes were selling at a 12% discount on a per-square-foot basis, even as the median Wake County home value hit $475,000 — up 51% from pre-pandemic levels.
The average home got dramatically more expensive. New homes somehow got cheaper relative to existing ones. Why?
Hypothesis 1: Supply Responds — But Only Partially
The simplest explanation: supply caught up with demand. Wake County permitted roughly 17,000 homes per year since 2021, up from a pre-pandemic average of 10,000. More supply cools the relative premium for new builds.
As new construction surged post-pandemic, the price premium plummeted. The market is working — sort of. If increased supply were fully solving the imbalance, overall prices should moderate. Instead, they kept climbing.
Builders closed the relative price gap. They haven't touched the fundamental pressure driving prices higher.
Negative lag (left half): if the price premium changes today, what happens to construction in future years? Strong negative values (down to −0.7) mean a higher premium today correlates with more building several years later — builders respond to profit signals, but it takes time.
Positive lag (right half): if construction increases today, what happens to the price premium in future years? Moderate negative values (−0.2 to −0.3) show that more building today tends to lower the premium in subsequent years, but the effect is weaker than the signal going the other direction.
Hypothesis 2: The Great Rate Divide — Builder Flexibility vs. Owner Lock-In
Interest rates reshaped the housing market. In Wake County, for every percentage point rates climbed, roughly 200 fewer homes sold per month. Financing a $500,000 home jumped from ~$2,200/month in 2021 to ~$3,200/month today.
As rates spiked in 2022, listings cratered and stayed low. Why? The lock-in effect. Existing homeowners with 3% mortgages looked at 7% rates and stayed put, drastically reducing resale supply.
Builders faced no such constraint — and they had financial cushion. National homebuilder gross margins climbed from ~21% pre-pandemic to nearly 29% at their 2022 peak, allowing them to offer aggressive rate buydowns, price cuts, and incentives that individual homeowners couldn't match. Builders jumped from ~25% of Wake County sales pre-pandemic to 36% post-pandemic.
Rate dynamics gave builders the flexibility to undercut existing homeowners. But they don't explain where the discount runs deepest.
Hypothesis 3: Location, Location, Limitation
The real unlock is geography. Wake County built ~17,000 units per year — but where those units landed matters enormously.
Pre-pandemic, demand concentrated in the pricier northwest-central corridor. That's where you'd expect builders to follow. But that's not what happened.
Only 6.8% of new homes were built in the top price quintile. The two lowest price quintiles captured the most new construction — 18.7% and 18.8%, respectively. Builders went where land was cheaper and regulatory hurdles were lower.
New homes appear cheaper on average partly because they're disproportionately in cheaper locations. Existing homes in high-demand areas face less competition from new builds nearby and benefit from scarcity and the lock-in effect. New construction, concentrated in lower-priced areas and sold with builder incentives, pulls the average new home price down.
Land costs, zoning, and infrastructure push builders to the periphery — and that geography gap explains much of the apparent discount.
Conclusion
Wake County's story isn't unique. The same three forces are playing out across Sunbelt metros wherever land is constrained, rates remain elevated, and builders have outmaneuvered a frozen resale market. As rates eventually ease and the lock-in effect loosens, the discount will likely narrow. But the location mismatch is structural, not cyclical, and won't resolve on its own. Land use restrictions are preventing new construction from pushing prices down where demand is highest. Builders aren't avoiding high-demand submarkets by choice — they're locked out by zoning.
For planners and policymakers, the solution is clear: allow soft-density housing in high-demand corridors. The discount paradox will persist until new construction is permitted to go where the market needs it most.
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