What’s in store for new home buyers in 2025? Will the market be a roller coaster like it was in 2024, or should house hunters expect calmer waters ahead?
House hunters should reflect on lessons learned from navigating the market last year, as it is expected that buyers could encounter some of the same challenges in 2025, along with new opportunities that will likely come as the market stabilizes with steadier mortgage rates and new inventory.
Generally speaking, the message for new home buyers in 2025 is to be vigilant, prepared and nimble to act when opportunity knocks.
Here is some of what new home buyers can expect to see in 2025, and a rundown of influences likely to shape the trendlines over the coming months.
Will the Tumultuous Market of 2024 Persist in 2025?
For context, it’s helpful to consider the market from 2024. The 2024 housing market was as unpredictable as it was unconventional. Relatively low inventory and high mortgage rates, along with an election that held consequences for the housing market, all combined for wobbly climb on or up the property ladder.
While some of the challenges presented in 2024 will persist in 2025, there is a general sense of cautious optimism on the horizon for new home buyers.
Home Sales to Increase
The National Association of Realtors (NAR) expects that new home sales will increase by 11 percent in 2025.. Pent-up demand and relative stability with mortgage rates, and post-election clarity on policy and the path ahead will provide impetus for buyers to jump in the pool.
Buyers Can Expect More Inventory
Inventory is expected to increase, which generally shifts the market in favor of buyers, although it remains to be seen if new inventory levels will be sufficient to tilt the market.
The Trump administration will likely offer looser regulatory oversight in the construction industry. This, along with more favorable interest rates, will make it easier for builders to ramp up new development more quickly, which is driving builder optimism looking ahead to 2025, according to the National Association of Home Builders (NAHB). Land availability and higher borrowing costs continue to be challenges for builders, affecting potential new inventory levels.
Other factors that might influence new construction include potential tariffs, tighter immigration rules and the labor market.
According to Zonda most builders indicate they will increase housing starts over 2024 levels. Zonda forecasts that single family housing starts will increase by 3%-5%,
Mortgage Rates Will Still Be High, But Stable
Mortgage rates, although still elevated compared to pandemic-market lows, will begin to stabilize through 2025, though rates will ultimately depend on inflation and unemployment data.
The Fed has indicated that rate cuts are to be limited in 2025, which will likely mean that mortgage rates won’t decline drastically but could dip slightly as other pressures that have been propping them up begin to diminish. Similarly, with less rate cuts on the table, rates will hold levels for longer, which helps with budgeting and planning, all of which could coax buyers back from the sidelines.
Other Factors in the New Home Market That Will Influence New Home Buyers in 2025
The Link Between Moderate Housing Price Growth and Affordability
One of the head-scratchers from the real estate market in 2024 was how much, and how quickly home prices escalated. It was surprising that the market was as competitive as it was in 2024 for buyers, given that rates were higher and affordability was a challenge, which should have theoretically slowed the market down.
Typically, high rates temper house price appreciation, but a short supply of inventory pushed prices upwards.
In addition to high housing prices, it is important to note the significant gap between income growth and rising housing prices in 2024.
When income growth lags far behind housing price growth, affordability shrinks even more, because a greater share of household income has to go to service housing costs.
If housing prices grow slowly in 2025, as industry experts are predicting, wage growth will theoretically have a chance to catch up, helping with affordability.
Mark Palim, Fannie Mae senior vice president and chief economist, said in a release, ”A silver lining for affordability is that we also anticipate income growth will outpace both home price and rent growth this year — and in many markets, new homes are now priced competitively with existing homes and are far more available.”
The Locked-In Effect Froze The 2024 Housing Market. Will This Continue in 2025?
The health of the housing market depends largely on the flow of available housing stock, allowing buyers to move up and down the property ladder.
However, many existing homeowners hold mortgages at significantly lower rates than they would be offered if they were to sell their home and buy a new one today. This has prompted a number of homeowners to stay put, interrupting the natural flow of inventory into the market.
This represents a significant number of homeowners, and potential resale inventory. The Consumer Finance Protection Bureau (CFPB) estimates that 60 % of the 50.8 million active mortgages have interest rates below 4 %, well below what rates are at today, and are likely to be at in 2025.
However, mortgage rates are only one part of the motivation to sell or not and given that sellers have largely been sitting on the sidelines for some time, this trend may lose momentum in 2025, as sellers lose patience.
Other life events that generally trigger home sales, such as births, deaths, marriage and divorce, will be a more urgent driver of existing home inventory back into the market.
While the frozen housing market is likely to thaw, at least moderately in 2025, the expectation is that existing housing inventory may trickle, as opposed to flow into the housing market for buyers waiting in the wings.
What Can we Expect From Mortgage Rates?
Much to the dismay of would-be buyers, 2025 kicked off with the highest mortgage rates seen since July.
“Inching up to just shy of seven percent, mortgage rates reached their highest point in nearly six months,” Sam Khater, Freddie Mac’s chief economist, said in a release.
Despite the high rates, an increasing number of buyers are becoming active in the market, having found a comfort level and acceptance with the current rate environment, which is an important trend to note, as it may be a sign of things to come, as market activity heats up.
“Compared to this time last year, rates are elevated, and the market’s affordability headwinds persist. However, buyers appear to be more inclined to get off the sidelines as pending home sales rise,” said Khater.
How Low Will They go?
“The average 30-year fixed mortgage rate spent nearly half of 2024 above the 7% mark and never got lower than 6.2%. In 2025, the average 30-year fixed mortgage rate will spend most of the year in the 6’s, with a short-lived spike above 7%, but never getting below 6%. Continued economic growth and worries about inflation and government debt will keep mortgage rates elevated.” says Bankrate’s chief financial analyst, Greg McBride.
New Construction Homes Emerge as a Compelling Choice
This offers a unique opportunity for the new construction market, where buyers can choose homes they want, where they want, without waiting for existing homeowners to pull the trigger.
“With many existing homeowners holding onto their lower mortgage rates, new construction homes are emerging as an attractive option for today's buyers,” says Jan Cooper, vice president of Residential Marketing Community Development, Southern Land Company.
”Beyond simply offering fresh inventory in a tight market, new homes deliver significant advantages that can offset higher interest rates through long-term savings and lifestyle benefits.”
In addition to growing inventory, there are lots of opportunities for negotiation when buying a new construction home, which further sweetens the deal for prospective buyers.
According to the NAHB, at the beginning of 2025, 61% of builders indicated that they used sales incentives to entice buyers, but negotiating power varies by location, depending on local demand.
This increase in inventory in new construction could arm buyers with power on the house hunt.
“Broadly speaking, expect builders to moderate the pace of new construction, which will support prices. But at a time of high mortgage rates, new home construction offers rate buydowns you’re unlikely to find in the existing home market.” says McBride.
House hunters may find greater appeal in the longevity of a new construction home, especially given the hurdles many have had to overcome in the last year to arrive at homeownership, as it is easier to anticipate maintenance and energy costs.
“New construction homes are designed with modern energy efficiency standards, featuring better insulation, high-performance windows, and ENERGY STAR® appliances that can substantially reduce monthly utility costs,” says Jim Henry, executive vice president of Community Development, Southern Land Company.
Having the opportunity to align items on the wish list right out of the gate is another benefit of new construction, especially if resale inventory is limited, which may mean having to compromise on location, or taking on renovation projects, which may be costly or inconvenient.
“There are often fewer trade-offs between architecture and livability (with a new build). For example, you might find a floor plan you love in a resale home but really don't like the curb appeal or location. Whereas a new home typically comes with current finishes and floor plan designs, eliminating the need for renovation work that often comes with resale. With new construction, there is simply more choice.” says Henry.
How Should Buyers Prepare for a Purchase in 2025?
It’s conventional wisdom that house hunters should be organized and prepared in advance of starting to look for a home in any market, but given the forecasted conditions for 2025, and the sense that opportunities are going to emerge throughout the year, without a clear idea of exactly when we’ll see them, preparation is even more crucial.
For buyers, this means setting limits on your budget. Remember affordability isn’t just about housing prices or mortgage rates coming down, but understanding how much you can comfortably afford to spend on a home. Don’t forget to include property taxes, HOA fees (if applicable) and maintenance costs, along with a mortgage payment, in your monthly spending.
For new home buyers looking to score the best deal:
Don’t Rely on the Season
Typically, the real estate market follows a seasonal pattern, with spring usually the busiest for both buyers and sellers. Industry experts say that this may not be the case this year, given the other market conditions. Don’t try to time the market, but be vigilant and adaptable to changing market conditions, ready to buy when the right home in your price point is up for sale.
Be Flexible With Location
Widening your search parameters may also increase buying opportunities within your budget, as various metros, and areas within specific metros, are more likely to see greater and faster price appreciation over others. Similarly, certain areas are likely to have more inventory over others. Typically, more inventory = buyer advantage.
Plan to Negotiate, and Not Just on Price
Especially in the new home construction market, there are opportunities for negotiation. You may be able to negotiate with your builder on price, but look beyond price point for other negotiation points, which can help you land “more house”.
Ask about mortgage rate buydowns, increased builder upgrade allowances, help with closing costs and quick-move-in incentives.
“Conditions will vary by market, even more than usual. In markets or developments where there is an overhang of inventory, buyers are more likely to find price concessions, generous upgrades or closing cost credits, and meaningful mortgage rate buydowns.” says McBride.
