Building Boom Forecast for 2025: Number of Affordable New Homes Set To Soar, but Expect Them To Be Smaller

Builders are working to fix America’s critical housing shortage—and while the number of new homes is expected to top 1.1 million in 2025, expect them to be built slightly smaller.

But, homebuyers can expect them to be more affordable, too, according to the Realtor.com® 2025 Housing Forecast. This is especially good news for first-time homebuyers, who might find new homes easier to access in areas that are growing.

New construction will help ease the housing shortage

In 2025, new-home sales and single-family housing starts are expected to improve compared with other types of homes. Builders plan to construct about 1.1 million homes, which is a 13.8% increase from 2024.

Builders are working to make homes more affordable, especially for first-time buyers. They are also focusing on smaller homes, which have not been built often enough.  The number of new homes sold for less than $300,000 rose from 14% in September 2023 to 17% in September 2024. This trend is expected to continue in 2025, giving homebuyers more affordable options. 

Builders are also using new technologies, like modular and 3D-printed homes, to lower costs and speed up construction.

The role of policy in shaping the market

While on the face of it, new-home construction looks promising, but there are some uncertainties due to the incoming Trump administration and potential policy shifts.

President-elect Donald Trump has said that he plans to reduce some regulations, including making more federal land available for development, which could help boost homebuilding. But, Trump has also said that his plan to deport millions of undocumented immigrants will solve the nation’s housing crisis. He also plans to raise tariffs. If both of these policies go into effect, the costs of labor and materials could slow construction and push home prices even higher.

A thriving housing market relies on balance—policies that enhance land availability and lessen regulations can foster growth in construction, according to Carmen Sepulveda, vice president of sales at Contempo Builder, a Houston homebuilder.

On the other hand, restrictive policies such as stricter immigration rules or new tariffs could lead to increased costs for labor and materials.

“When these costs increase, they inevitably get passed on to the end consumer, raising home prices and making affordability an even greater challenge. If we want to sustain progress in addressing housing shortages, it’s essential that policymakers and builders collaborate to keep costs manageable and maintain accessibility for buyers,” Sepulveda stated.

Opportunities and risks for homebuyers

While 2025 is expected to bring more affordable options, especially for first-time homebuyers, as builders focus on budget-friendly options, the rising costs and policy changes could slow down homebuilding.

Buyers should monitor new markets where homes are being built to take advantage of opportunities in 2025.

Existing-home sales: Will the market bounce back?

There’s plenty of good news on the horizon, but challenges still exist. The recovery of the housing market will depend largely on mortgage rates, buyer attitudes, and the overall economy.

Mortgage rates will continue to average above 6% next year, according to the 2025 housing forecast. The report forecasts that mortgage rates will average 6.3% across 2025 and end the year at 6.2%. That’s a leg down from the 6.7% average expected across 2024 by year-end, but still well above the 4% historical average recorded from 2013 to 2019.

“This past year brought us a surprising upward trend in home price growth despite the persistence of high mortgage rates and rising inventory,” Realtor.com economists wrote. “Mortgage rates are expected to keep mortgage payments essentially unchanged in 2025 despite continued home price growth.”

There is some hope for better affordability because of lower mortgage rates and higher household incomes. Still, many homeowners are reluctant to sell due to their favorable mortgage rates, which is affecting the market.

On a positive note, as inventory is expected to increase and the competition between buyers and sellers becomes more even, existing-home sales might gradually recover, creating chances for both sides. The market’s complete recovery will ultimately depend on how quickly these changes happen and whether potential buyers feel confident enough to participate in the current financial landscape.