Home builders thought this year was going to bring a boom. They were wrong.
Single-family construction starts — a crucial measure of how many new homes are being built — are expected to come in 7 percent lower in 2025 than last year, according to forecasts from the National Association of Home Builders. Among new homes built for rent, starts were down 16 percent in mid-2025 compared to the year before. Home builders are offering more and more perks to get buyers off the sidelines, and a closely watched sentiment survey showed builders stayed glum throughout the year.
“The expectations for 2025 were better than the actual results,” said Robert Dietz, chief economist at NAHB. Some data won’t be complete until early next year. But big-picture, the industry’s hopes were “leaning too far into some of the optimism that we saw building in 2024.”
Indeed, last year ended on a relatively high note. Single-family starts in 2024 totaled 1.01 million, up 6.5 percent from 2023, according to NAHB. Hundreds of thousands of homes that started construction on the heels of the pandemic hit the market last year, giving buyers and renters more options. And even though prices still ticked higher, the sense among many builders, housing economists and real estate agents was that 2025 — and in particular, President Donald Trump’s return to the White House — would usher in more momentum.
Many builders hoped the new administration would cut a slew of environmental and permitting regulations that can slow construction. They also expected broader economic growth and that, as inflation simmered down, the Federal Reserve would keep lowering interest rates, which in turn would help lower mortgage rates for buyers.
The U.S. economy did grow at its fastest pace in two years in the third quarter. But many of those other hopes haven’t materialized.
One key regulation — which prohibits building homes near water or roadside drainage ditches that connect to creeks and streams without first obtaining a federal wetlands permit — hasn’t been updated yet. And while the Fed trimmed its benchmark rate three times this year, officials are increasingly splitover how to respond to stubborn inflation and a softening labor market. For now, they only have one cut penciled in next year, which may not do much to nudge mortgage rates down. Last week, the 30-year fixed rate mortgage averaged 6.18 percent, according to Freddie Mac, down from 6.85 percent this time last year.
Trump’s policies are weighing on builders, too. Sixty percent of builders say that their suppliers have already raised prices for materials, or that they will, because of tariffs, according to NAHB surveys. And across the country, the administration’s immigration crackdown has resulted in mass detentions and deportations of foreign-born workers, a population that makes up about a third of the construction workforce. There isn’t precise data on how many workers have been deported. But contracting and construction trade groups have long been worried about workplace raids and random pickups, coaching employers on what to do if immigration officials show up at a site or start inquiring about paperwork.
In the Orlando area, Hardwick General Contracting had a full slate of projects to stay busy, said president and owner Greg Hardwick. But the ripple effects from a weakening job market, immigration policies and tariffs kept popping up. To keep construction on track, Hardwick said, he’s leaning more into subcontracting on larger businesses that employ dozens or hundreds of people, rather than hiring smaller mom-and-pop shops that can have a harder time filling vacancies. Still, he’s gotten calls this year letting him know drywall or stucco crews wouldn’t be able to show up because they were down too many workers, possibly because some had been detained or were too afraid to come to work, he said.
Hardwick also said suppliers were constantly reaching out about price increases — but without clear explanations.
“We were getting letters from suppliers that tariffs were increasing prices, but if you would call with a question and say, ‘What specific tariff was increasing the pricing here?’ they really couldn’t tie it to anything,” he said. “It was really the anticipation.”
Near Denver, high borrowing costs are the biggest hurdle for Jeff Jacob. Construction loans can hover one percentage point higher than regular 30-year loans. And at more than 7 percent, Jacob said his rates are well above what he could secure from 2017 to just a few years ago.
About half of his buyers purchase homes in all cash, Jacob said, and he just finished the largest house he’s ever built. But the president of Jacob Custom Homes also sees the ways Colorado’s market responds to interest rates. One client put off a project because an old house hadn’t sold. Jacob has also stopped building homes that don’t have buyers lined up because demand is so low.
“I’ve been in this business for 30 years. I’ve seen it go up and down,” Jacob said. “And always, always, always, the one big factor is always interest rates.”
Builders did see some bright spots. Construction for townhouses — which are often more affordable for first-time buyers — is growing, with newly built townhouses accounting for more than 18 percent of all single-family starts for the second quarter, according to NAHB. Custom home building — where a house is built on a lot owned by the owner, not the builder — was up 4 percent in the second quarter compared to 2024. Wealthier customers who are less sensitive to interest rates and have more wealth in the stock market may account for that rise, Dietz said.
There’s also hope for more momentum in 2026. Existing-home sales are expected to clinch a small but meaningful gain over 2025, rising about 1.7 percent, to 4.13 million, according to Realtor.com. The number of homes for sale could also rise nearly 9 percent year over year. And while mortgage rates aren’t expected to fall much, more construction will give buyers more options, which could help lower prices and drive sales. The Mortgage Bankers Association expects total single-family mortgage origination volume to rise to $2.2 trillion in 2026, up from the $2 trillion forecast for 2025.
New construction is giving breathing room to places like Nashville, where home values were up 45 percent in November compared to right before the pandemic, per Zillow data. Ashley Luther, a local real estate agent, said builders have been so eager to turn over properties that they’re keeping incentives for buyers flowing, at times even offering temporary buydowns that could take a mortgage rate as low as 4.99 percent. In a surprising twist, that has meant new homes are sometimes cheaper than existing ones, helping lure skeptical buyers back into the market.
“Buyers are just not confident in where our economy is headed,” said Luther, owner and broker of CHORD Real Estate. “And that gives them pause.”
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