The housing market of recent years has been anything but predictable. From shifting market dynamics to fluctuating economic factors and evolving buyer expectations, this is truly a transformational period for the industry.
At New Home Star, we view every market shift as an opportunity for growth rather than a challenge to overcome. As such, our team of expert market analysts has compiled a comprehensive report of 2025 housing market predictions to help you navigate this dynamic market.
Housing Market Predictions 2025: 5 Takeaways You Should Know
- Builder should expect slower growth ahead: New home sales and price growth are expected to increase marginally but at lower rates than in recent years due to large expansion.
- A boost in affordability: Affordability will remain a primary concern in 2025 and beyond, driven by persistent supply-demand imbalances and elevated borrowing costs. With the U.S. housing market facing a deficit of millions of units, home prices are expected to continue rising, albeit at a more moderate pace of mid to low-single-digit growth. However, these trends will vary significantly across local markets. Interest rates are expected to decline gradually in 2025, offering some relief to buyers. Builders navigating this landscape will require strategic adjustments to address affordability challenges and adapt to market variability.
- Housing inflation remains elevated, even as the national inflation rate declines: Elevated housing inflation rates have reduced the cost difference between new and existing home sales. Historically, the "new home premium" has ranged from 10% to 20%, with a commonly cited national average of around 15%, varying by market. However, 2024 data shows this premium has dropped to just 5.4%, making it easier for builders to convert buyers from resale to new construction without justifying a significant premium.
- New home sales will see a boost from spec homes: Builders focusing on spec homes, particularly those at moderate prices, have experienced sales success. Many buyers prefer homes ready for immediate move-in, making spec homes an attractive option compared to properties still under construction. Spec homes nearing completion, ready in 30 to 90 days, are more accessible for buyers — they can envision their lives in the near future with more certainty. Given the low inventory in the market, builders should consider building more spec homes to meet this demand for stability. Not only do market dynamics favor spec homes, but consumer psychology also leans toward inventory-ready options, offering buyers a sense of security and immediacy.
- Rising competition in the rental market strengthens the case for homeownership: The impact of housing supply and demand imbalances extends to the rental market, where many “need-to-move” buyers — those relocating for a job opportunity or due to family restructuring — turn to rent when homeownership is not viable in their desired market. This influx of these renters is expected to increase competition, driving rental prices even higher. With multifamily housing starts remaining sluggish, the limited rental supply will continue to push monthly rates upward. As a result, homeownership increasingly becomes a more compelling and attainable option. This dynamic presents builders advantageously with the opportunity to negotiate favorable deal terms and offer greater value to buyers than renting.
2025 Housing Market Outlook
For an in-depth look at more of our 2025 housing market predictions, download the 2025 State of Housing Report: Home Builder Edition. This extensive report features the latest market data with the strategic perspectives of our seasoned leadership team, offering a comprehensive and actionable outlook on the housing sector. Inside, you’ll find expert recommendations designed to help position your home-building business for success in 2025 and beyond.
