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  Home  >  Communities  >  Lexington  >  Lexington Market Review  >  New Construction Market Summary

Summary

New construction is a significant portion of the market, especially when compared to nearby towns. While it is only 13% of the total market (down from 15% in 2023), it accounts for over 50% of the over $2.5 million price range. Given that most of the new construction homes are built on the site of existing homes – teardowns – it has a significant impact on the under $1 million price range by making it more difficult for home buyers to purchase “attainable” priced homes.

We saw a decrease in the number of new construction homes sold in 2024 to 39 homes (50 new construction homes sold in 2023 and 41 new construction homes sold in 2022). The reason for this increase in 2023 was that many new construction homes built in 2022 remained unsold at the end of the year. In 2023, developers were forced to discount those homes and so the average price of new construction homes declined in 2023, the sale price to list price ratio decreased to below 100% and days on the market doubled to 80 days. This over-capacity was almost completely absorbed by 2024 and so in 2024 home sales returned to the numbers seen in 2022. But the high carrying costs faced by developers meant that in 2024 new construction homes sold quicker than in prior years but with a lower sale price to sale price ratio (with developers discounting from the list price to sell quickly).

It’s interesting to compare new construction price appreciation to off-market teardown appreciation. New construction price appreciation grew at approximately 40% since 2020 yet the average price developers paid for off-market teardowns has remained relatively static over the same period. Given the near zero price appreciation of off-market teardowns when compared to the overall market and especially the dramatic increase in new construction home prices seen in recent years, it is clear why developers see Lexington as a very profitable town in which to build.

New Construction Home Sales

We saw a decrease in the number of new construction homes sold in 2024 to 39 homes (50 new construction homes sold in 2023 and 41 new construction homes sold in 2022). The reason for this increase in 2023 was that many new construction homes built in 2022 remained unsold at the end of the year. In 2023, developers were forced to discount those homes and so the average price of new construction homes declined in 2023, the sale price to list price ratio decreased to below 100% and days on the market doubled to 80 days. This over-capacity was almost completely absorbed in 2024 and so in 2024 home sales returned to the numbers seen in 2022. But the high carrying costs faced by developers meant that in 2024 new construction homes sold quicker than in prior years but with a lower sale price to sale price ratio (with developers discounting from the list price to sell quickly).

As we write this (January 2025) there are a total of 17 homes on the market, 10 (60%) of these are new construction. Also, all 10 of these new construction homes are over $2.5 million. With 7 new construction homes cancelled in the last 3 months of 2024, a new set of homes coming on in 2025, and continued high carrying costs we predict that developers will continue to discount prices as 2025 unfolds.

Sale Price to List Price Ratio

One of the strongest indicators of demand is the ratio of the sales price to the list price. An average ratio of over 100% means that, on average, there was competition, resulting in buyers competing to buy the home and paying more than the asking price.

We saw a decrease in the number of new construction homes sold in 2024 to 39 homes (50 new construction homes sold in 2023 and 41 new construction homes sold in 2022). The reason for this increase in 2023 was that many new construction homes built in 2022 remained unsold at the end of the year. In 2023, developers were forced to discount those homes and so the average price of new construction homes declined in 2023, the sale price to list price ratio decreased to below 100% and days on the market doubled to 80 days. This over-capacity was almost completely absorbed in 2024 and so in 2024 home sales returned to the numbers seen in 2022. But the high carrying costs faced by developers meant that in 2024 new construction homes sold quicker than in prior years but with a lower sale price to sale price ratio (with developers discounting from the list price to sell quickly).

Sale Price Distribution

There have been a number of changes in the sale price distribution of new construction homes in 2024. In 2024 there were only 2 new construction homes below $2 million with the majority of new construction condominiums now selling at over $1.4 million.

The data shows a major shift in the $2 million to $2.5 million price ranges. In 2023 20 new construction homes sold in this price range, in 2024 the number of homes selling in this price range decreased by a third to 6 homes. The reason for this shift to a higher price is a combination of higher acquisition, build, and ongoing carrying costs.

The $2.5 million - $3 million and the $3 million to $4 million price ranges strengthened with 26 homes selling in these price ranges in 2023 and 28 homes selling in 2024 with a shift into the higher price range. These shifts in price distribution explain why the average new construction price is now over $3 million.

Off-Market Teardown Analysis

As we have stated previously, in 2020 the average price of new construction homes was $2.1 million, by 2024 this had risen to $3.0 million, an increase of over 40% which, when considering the homes’ square footage, was essentially the same size home. It is interesting to plot the average new construction sale price against the off-market teardown price. The data confirms the often-quoted rule-of-thumb of the rule-of-thirds. Approximately a third for acquisition, third for building, and a third for profit. But, in 2021 and 2022 the rule was progressively broken – new construction prices rose 36% but the off-market teardown price remained the same.

It should be noted that the reason that there were so few off-market teardowns in 2024 was that a large number of new construction homes remained unsold. We count teardowns when a new construction home sells not when it is listed. Were it not for the oversupply in the luxury (and therefore new construction) markets the number of teardowns would have been considerably higher.