Home Prices Rose 37% in the Last Five Years: Why?

Builders blame regulations and construction costs, but does the data bear that out?

While the price of eggs is a hot topic right now, housing affordability is an ongoing crisis throughout the U.S. with no end in sight. While inflation hovers between 2% and 3% now, far less than the peak of 9% in 2022, the average sales price of newly built homes continues to climb.

Many renters aspire to homeownership and recognize that operating costs of a newly built home would be far less than an older home but the price to buy remains out of reach for many.

Clearly, demand and supply dynamics are in play. But buyers also want to know about the specifics that drive home prices for new construction higher?

In 2019, the average sales price for a newly built single-family home in the U.S was $485,128, according to the National Association of Home Builders (NAHB). In 2024, the average sales price for new construction homes was close to $200,000 higher at $665,298, a 37% increase, according to NAHB. That’s well above the cumulative increase in prices of 23% since 2019, based on the Consumer Price Index.

Plenty of moving parts go into the construction of a home including the materials, systems and appliances, along with the cost of land and wages for everyone from architects to construction workers to sales personnel.

Construction costs in 2024 accounted for 64.4% of the average price of a home, according to the National Association of Home Builders, which was a record high since that research began in 1998 and the fifth time in the study’s history that construction costs were 60% or more of the average home price. In 2019, construction costs accounted for 61.1% of the average home price.

When it comes to blaming higher construction costs for the spike in home prices, builders are on to something: the average dollar amount spent on construction costs jumped 44% over the last five years.

Building Costs Other than Construction

While the spike in prices for lumber and other materials made headlines, particularly at the height of the pandemic, inflation has taken a toll across every category that contributes to the price of a home.

One of the biggest expenses is wages paid to those in the construction industry. Shortages of skilled workers add to the wage pressure on builders who need to attract and retain valuable employees. In December 2019, the average hourly wage for residential building construction workers was $28.32, compared to $34.05 in December 2024, according to the Bureau of Labor Statistics. Multiplied across numerous hours and hundreds of employees, that becomes a considerable cost.

NAHB’s annual Construction Cost Survey found that prices rose in every category in 2024 compared to 2019, although the percentage of those prices of the total building cost was not always higher. (Also, NAHB says that comparing these numbers across years isn’t always apples to apples, since different builders respond to the surveys in various years, but these averages offer an idea of what’s causing the spike in home prices.)

Here’s a breakdown of the average expenses that factor in the sales price:

Despite higher interest rates in 2024, financing costs remained relatively stable. Finished lot costs were similar in cost but dropped to a much smaller percentage of the total house cost. Marketing costs were stable, but overhead expenses rose in both the dollar amount and percentage of the total house cost.

Sales commissions were about the same as a dollar amount over the five-year period but dropped nearly one percentage point in terms of the total cost of the house. Given the changes in the commission rules established by the National Association of Realtors that were enacted in August 2024, sales commissions may drop further in 2025.

Builder profits rose 2% on average over the five-year period and increased as a dollar amount as well.

Components of Construction Costs

Construction costs include materials like lumber for the framing, insulation for the interior, and glass for the windows, along with the systems, appliances and finishing touches needed before new owners can take occupancy.

NAHB breaks down some of those costs in categories as follows:

• Site work, which includes permitting, impact fees, architecture and engineering, and water and sewer fees and inspections. In 2019, site work cost an average of $18,323 compared to $32,719 in 2024.
• Foundation work cost an average of $34,850 in 2019 compared to $44,748 in 2024.
• Framing work, including the roof, trusses, sheathing, metal and steel cost an average of $51,589 in 2019, compared to $70,982 in 2024.
• Exterior finishes, including the roof, windows, doors, garage doors and exterior walls, cost an average of $41,690 in 2019, compared to $57,510 in 2024.
• Major systems rough ins such as plumbing, electrical and HVAC cost an average of $43,668 in 2019, compared to $82,319 in 2024.
• Interior finishes, which include insulation, drywall, trim, lighting, cabinets, appliances, paint, countertops, plumbing fixtures, flooring and fireplaces cost an average of $75,259 in 2019, compared to $103,391 in 2024.
• Landscaping, outdoor finishing work, driveways and clean-up cost an average of $20,116 in 2019, compared to $27,710 in 2024.

Some of the biggest jumps in cost came from site work, which almost doubled over the five-year period, as well as interior finishes and major system rough-ins. But no category registered a reduction in cost between 2019 and 2024.

Of the eight major stages of construction, interior finishes, at 24.1%, remains the largest component share of construction costs, followed by major system rough-ins (19.2%), framing (16.6%), exterior finishes (13.4%), foundations (10.5%), site work (7.6%), final steps (6.5%), and other costs (2.1%), according to NAHB.

Lumber prices tend to be volatile and rose from $419.20 per thousand board feet in January 2019 to a peak of $1,284.20 in May 2021, then back to $567 in February 2025.

It remains to be seen what the threatened trade wars and tariffs will do to the cost of construction materials. Policies that restrict immigration are likely to exacerbate the shortage of skilled workers, in turn driving up the cost to build a new house and slowing production. But one thing seems pretty certain: the price of the average home is not likely to suddenly become more affordable.

Publisher’s Note: This content is made possible by our Today’s Homeowner Campaign Sponsors: Whirlpool Corporation. Whirlpool Corporation takes sustainability seriously, in both their products and their operations. Learn more about building and buying homes that are more affordable and less resource intensive.