2025: Housing Market Projections

Despite persistently high housing costs, inflation, and mortgage rates, the housing sector is projected to remain solid in 2025.

The U.S. economy has shown exceptional resilience in the face of inflation, social division, and political uncertainties. The financial system remains strong, inflationary pressures are gradually easing, and it’s expected that the housing sector will continue to grow in 2025 and beyond.

Interest rates are projected to fluctuate between 6 and 6.5% for the majority of 2025. These lower rates will have a positive domino effect on the housing market: they’ll boost new home sales, open up existing home sales, and diminish the ‘lock-in’ effect (which resulted from homeowners securing very low rates during the pandemic and not wanting to move.)

Existing home sales are starting to rebound in states like Florida and Texas but still remain below normal conditions.

While existing home sales are expected to increase to about 4.3 million (a 9% increase over 2024), new home sales likely won’t be impacted due pent-up demand. In fact, it’s anticipated that home buyer demand will increase faster this year than projected supply, driving new home sales growth.

In response, builders plan to increase their starts in 2025 over 2024 somewhere in the 3% to 5% range, according to Green Builder Media’s COGNITION Smart Data.

Land and Labor Woes

Also according to COGNITION, builders report that they have been struggling with high land development costs. Unfortunately, they shouldn’t expect to feel much relief in 2025, primarily because of continued delays for entitlements, zoning, and plan approval.

With that said, the land market is strong, indicating that housing prices won’t drop considerably in 2025 (given that the cost of land comprises about 20 to 50% of the final home price.)

While labor continues to be a central challenge for the industry, it’s not as much of a critical limiting factor as it was over the past several years. Worker shortages actually decreased from a 400,000 person shortage in 2023 to 250,000 in 2024.

With that said, workers in the building industry continue to age out faster than younger new talent is entering the market, so labor will continue to be a conundrum for years to come.

Affordability Challenges Persist

Affordability concerns will continue in 2025: home prices are expected to appreciate more slowly this year than in 2024 but still by about 3.5%. According to Redfin, the median sale price of a home in the U.S. has reached $430,010, up 5.4% from the previous year.

Home values will likely increase by approximately 2.5% (similar to 2024). Zillow reports that the typical U.S. home value is $357,460, up 2.5% from 2023.

The combination of rising home prices in combination with persistently high mortgage rates will continue to price some homebuyers—especially first-timers—out of the market.

With that said, wage growth is expected to outpace home price growth for the first time in a decade this year, offering moderate relief to homebuyers.

Addressing Affordability

To address affordability, builders report that they will continue to offer mortgage buydowns and incentives, and they’ll also explore less expensive secondary and tertiary markets that are more attainable for homebuyers.

Additionally, builders are increasingly incorporating townhouses into their offerings, which provide a more affordable alternative to single-family homes and increase density, especially in suburban and edge-city locations.

According to NAHB Chief Economist Dr. Robert Dietz, “the market share for townhouses in the single-family building space is currently 17%, a high mark in the last four decades.”

Dietz also projects that builders will continue to expand Built-For-Rent (BFR) options (single- family homes for rent rather than for sale.) A broad spectrum of consumers, from younger families that want the amenities of a home but can’t afford a down payment to older adults that don’t want to deal with upkeep, are buying into the BFR model, and the sector is correspondingly up by 10%.

Cost Burden

A recent survey conducted by the Harvard Join Center for Housing revealed that a record number of U.S. households are cost burdened. According to the survey, all-time high of 42.9 million households spent more than 30% of their income on housing costs—that’s an annual increase of 850,000 households.

21.5 million households spend more than 50% of their income on housing costs—another all- time high.

The median monthly costs for homeowners increased 6% to $1,327. Overall costs for homeowners have increased by nearly 20% since 2019, while incomes have only increased by 16%.

22.6 million renters are also cost burdened—up 2.2 million since 2019. For renters, income rose 19% between 2019-2023, while rents rose 29% to an average of $1,403.

The 2025 outlook for renters isn’t rosy: as renters continue to postpone home purchases due to high prices and mortgage rates, increased demand for apartments will bump up against a decrease in apartment construction, paving the way for rental unit rate hikes.

Cost burdens are expected to perpetuate at similar levels in 2025, although consumers can expect some financial relief from stabilizing mortgage rates and ongoing job growth. Gradual improvements in housing inventory levels are expected to enhance buyer confidence and market participation.

Perhaps the best news for homeowners: there has been a collective $15 trillion increase in housing equity over the past four years, driving the ability for existing homeowners to qualify for next-level homes should they decide to move.

Insurance Crisis

Due to the increasing frequency and intensity of climate events like wildfires, superstorms, flooding, and tornadoes, the home insurance market is in shambles. Escalating home insurance premiums are a harsh reality for many homeowners. However, higher premiums don’t always guarantee the right coverage or adequate compensation when climate risks materialize.

Insurance companies are now raising prices and dropping certain policies altogether in high-risk areas. This shift reflects an industry adapting to protect its business model but leaves homeowners navigating a tough and uncertain landscape.

In 2025, it’s likely that insurers will begin offering discounts or incentives for homes built or retrofitted to withstand extreme weather events, with impact-resistant roofs, fire-resistant materials, and flood mitigation systems, as well as smart home technologies, such as water leak sensors, fire detection systems, and security devices.

Green Building Growth

Green building growth in 2025 will be fueled by a mix of regulatory pressures, consumer preferences, technological advancements, and economic benefits.

Sustainable construction will continue to transition from a niche practice to a mainstream industry standard. Builders, developers, and homeowners who embrace green practices will not only reduce their environmental footprint but also position themselves for long-term success in a rapidly evolving market.

The good news: green building has become transactional. For consumers, green homes have lower operating costs and higher resale values, and they can often qualify for incentives, rebates, and lower mortgage rates and insurance premiums.

For builders, even with increased investments in high performance products like HVAC systems, water heaters, appliances, insulation, windows and doors, builders are actually finding ways to make money by tapping into energy efficiency and electrification tax rebates and incentives.

A Complex Yet Promising Path Ahead

As we move into 2025, the U.S. housing market finds itself at the intersection of significant challenges and transformative opportunities.

The transition to a new administration introduces uncertainties in policies related to regulations, tax policies, economic strategies, and sustainability mandates. These variables will add complexity for stakeholders across the housing sector, but they also open the door for innovative solutions that can offer new avenues to address affordability.

In the end, the 2025 housing market holds the promise of growth, resilience, and evolution. Builders, developers, and homeowners who embrace sustainable products and practices will be well-positioned to thrive in this dynamic landscape.

Want to learn more about zero carbon building? Enroll in Green Builder Media’s COGNITION Academy, which has robust courses on net zero carbon building, green building fundamentals, green product essentials and green building program like ENERGY STAR, Zero Energy Ready Homes, Indoor airPLUS, WaterSense, and HERS ratings.

And be sure to check out the COGNITION Carbon Offsets Marketplace if you’re interested in purchasing carbon offsets to mitigate emissions from your products, projects or lifestyle.