What impact does increased construction of new homes generally have on existing home prices?

Increased construction of new homes typically leads to a decrease in existing home prices. This phenomenon occurs due to the basic principles of supply and demand in the housing market. When new homes are built and available for sale, the overall supply of homes in the area increases.

As the supply of homes rises, buyers have more options to choose from. This additional inventory can create competitive pressure that forces sellers of existing homes to lower their prices in order to make their properties more attractive compared to new constructions. Moreover, if the new homes are being built at similar price points to existing homes, it may further dilute demand for the existing homes, leading to a decrease in their value.

While new construction can stimulate a market and initially increase demand, the immediate impact is often felt as downward pressure on existing home prices as a result of increased supply and competition.