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Homebuilders believe they can help consumers who are struggling to afford record high home prices and elevated borrowing costs. At the 2025 International Builders’ Show in Las Vegas, economists highlighted how sales incentives, an increase in newly built inventory and other factors are pushing more prospective home buyers toward new construction.
New-home sales represented 14.5% of the real estate market in 2024—the highest percentage in about 20 years, realtor.com® Chief Economist Danielle Hale said during a Tuesday session, “The Outlook: 2025 Housing & Economic Forecast.” New-home sales typically average about 10% to 12% of the market. “I like to tell real estate agents it’s a good time to have a strategy for working with builders,” Hale said.
How the New-Home Market Could Help
While there have been slight inventory increases in the resale market, home buyers are finding plentiful options in new construction. “New-home sales are expected to outperform again in 2025, but competition will be growing from existing sellers,” Hale said.
Here’s how the new-home market could open up opportunities for prospective buyers:
- Sales incentives: Nearly 60% of builders used sales incentives in January, according to the NAHB/Wells Fargo Housing Market Index. Sales incentives include funds toward closing costs, design credits and mortgage rate buy-downs. “We have so many customers today that need financial support in order to have the math make sense,” said Ali Wolf, chief economist at Zonda, a real estate research firm. Mortgage rate buy-downs, in particular, could help motivate move-up buyers. After all, 83% of outstanding mortgages have an interest rate below 6%, and 55% of home loans have a rate below 4%—making a rate buy-down notably attractive against today’s higher rates, Hale said. New-home listings are four times more likely to offer a mortgage rate buy-down incentive than an existing home, Wolf said.
- Price reductions: Twenty-six percent of builders cut their prices in February, with the average price reduction being 5%, according to research from the National Association of Home Builders. The price gap between existing and new homes has been shrinking: The median price for a new single-family home sold in the fourth quarter of 2024 was $419,200, only $9,100 more than the median price for existing homes, according to data from the National Association of REALTORS® and the Census Bureau. New homes often carry a price premium over existing homes, with the 10-year average between the two being about $50,000, the builder’s trade group notes.
- Townhome growth: The market share for townhouses is at a multi-decade high, reaching 19% of single-family housing starts in the fourth quarter of 2024. “If you can zone it, builders will build it,” said NAHB Chief Economist Robert Dietz. Townhomes tend to cost less than single-family detached homes and can be appealing to young professionals who may desire medium-density, walkable neighborhoods.
- Move-in-ready homes: Hale said there’s an increase in spec homes, or properties that are built before they have a buyer. In December 2024, 25% of new homes on the market were spec homes. With the use of sales incentives, these homes are not lingering long on the market, offering buyers an opportunity to bypass a lengthy construction process. “There’s been a strong desire for [spec homes] from consumers, and builders are responding,” Wolf noted.
- Built-for-rent: Some new single-family homes are being constructed for the rental market. Built-for-rent (BFR) properties comprised about 10% of home building last year. Single-family BFRs “will likely retain an elevated market share in the coming quarters,” Dietz said, adding that it could help bridge the gap for homeowners who are struggling to afford homeownership. “If home buying continues to be out of reach for young adults,” they may turn to built-for-rent communities, NAR Deputy Chief Economist Jessica Lautz recently noted on the association’s Economists’ Outlook blog. “They will need a bigger space for growing families, or even just a yard for a dog to play in,” she wrote. “BFR may be their solution while they save for their down payment for their first home.”
Wild Cards for the New-Home Market
Economists expect an uptick in new-home starts this year, although at a modest pace. Zonda predicts a 2.5% increase in new-home construction and a 3% rise in new-home sales. But recent policy uncertainty and cost factors have prompted caution about expectations for the new-home market.
Dietz noted that regulatory costs comprise $93,870 of the price of a new home. He said builders are hopeful for regulatory reform that could bring down costs but warned that the uncertainty over tariffs has prompted concern. For example, 32% of appliances and 30% of softwood lumber come from international trade, and builders fear tariffs could elevate those costs. Also, high inflation and tight lending conditions for construction and development loans could continue to weigh heavily on the new-home market.
“Home builders and remodelers are dealing with positive and negative risks in the months ahead,” Dietz said.
Nevertheless, Americans seem motivated when it comes to homeownership: A recent Zonda survey showed that 20% of renters would pay up to $500 more than their rent for a monthly mortgage payment, and more than 10% would pay up to $1,000 more. About a third of respondents said they expect to buy a home in the next three to five years, up from 17% in 2022.
“This survey data really illustrates the strong desire Americans place on owning a home of their own,” Wolf said. They may desire a home not only for stability but also for building wealth: Wolf cited a statistic showing that the net worth of homeowners is $396,200 versus $10,400 for renters—a nearly 40-fold spread.
