Single-Family Housing

• Builders are looking to the future with guarded optimism, though they recognize the headwinds will remain significant over the next year.

• Affordability remains the greatest challenge and is being addressed by constructing smaller, lower-spec homes, as most buyers are willing to sacrifice size and finishes for price relief.

• New homes and resale inventory are rising, and builders are shifting to single-family rental partnerships and slowing land purchases to manage excess supply and cancellations.

The single-family home market struggled in 2025, faced with a combination of slowing demand, weak affordability, and increased supply from slower sales and rising resale inventory. Builders are looking to the future with guarded optimism, though they recognize the headwinds remain significant over the next year.

Most builders described new home demand in 2025 as “slow.” New home sales per community were down 15 percent year-over-year in August, according to the John Burns Homebuilder Survey. Yet despite the moderation in sales, builders averaged 2.4 net sales per community in August, still 4 percent above the 2012–2019 August seasonal average. 

Builders seek to grow sales over the next three years but acknowledge significant challenges.

Despite the widespread use of incentives (builder incentives averaged 7.5 percent of base prices in August), affordability remains a top concern among homebuyers. The Burns Affordability Index, which measures housing-cost-to-income ratios, is currently near an all-time high of 39 percent (versus a norm of 31 percent).  

Looking to the next few years, one method builders are using to combat affordability is by building smaller homes. The average size of a new single-family home has fallen to 2,386 square feet in 2Q 2025 from a peak of 2,692 square feet in 2016. 

Buyers are increasingly willing to trade space for affordability. According to a recent New Home Trends Institute survey, more than 60 percent of current home shoppers say they would compromise on home size in order to purchase a new home. 

Some builders are lowering the spec level of homes to save costs. One builder noted lowering ceiling height and providing fewer windows and lower-finish countertops to save on costs. These changes have not had a material impact on home demand, as buyers are willing to trade the lower spec level for affordability.

Builders continue to report increased competition from new home inventory and resale supply. Unsold finished inventory is rising—up 18 percent year-over-year in August to 2.6 homes per community, per John Burns Builder Survey. The inventory varies by region, with Southern California the highest (4.4) and the Midwest the lowest (1.5). Resale supply is at or above 2019 levels in most markets (except the Midwest and Northeast). 

To combat supply, builders are increasingly turning to single-family rentals as a strategy to absorb excess supply by selling inventory homes or acting as a fee-builder to a single-family operator. In addition, builders report a slowing of land purchases in select markets where supply has become a concern. A recent John Burns Land Survey indicated nearly 80 percent of land brokers are seeing more frequent land transaction cancellations and renegotiations compared to normal.

While most builders concede that costs declined somewhat and stabilized in 2025, many believe rising costs—both labor and materials—could be a major headwind over the next two years. In a recent survey, John Burns Research asked builders if recent immigration policies have impacted the labor force yet and only 7 percent of large homebuilders surveyed said “yes.” But builders we spoke to note a challenging future ahead with one noting, “How do we get the same work with fewer people?” Another builder noted longer lead times for drywall and framing due to labor availability. And while materials costs have improved in 2025, builders are concerned for 2026 and beyond. One builder highlighted two lumber mills that recently closed due to “business challenges.” When market demand returns, the builder predicted rising prices due to a “strain in the supply chain.”

Labor and material cost concerns are growing, and builders continue to monitor the changes in these costs. Some work to secure their pipelines to provide a steady flow of work for their subcontractors. One builder noted conducting research into technology and prefabricated materials to save labor costs, and others are seeking alternative materials in anticipation of materials shortages or cost overruns. 

Nearly all builders we spoke with voiced concern over municipalities’ unwillingness to allow additional density needed to reduce housing costs. In addition, municipal fees and complicated rules continue to hinder the pace of new development, proving costly for homebuilders. One builder noted, “Permitting is our biggest challenge, which is impacting the timing of starts,” while another notes, “The city permitting process is long. City staff are not collaborative.” To combat these municipal hurdles, builders emphasized a strategic shift toward markets where development is more straightforward and collaboration with local governments enables smoother project approvals.   

Most builders identified consumer uncertainty and ongoing market volatility as the primary headwinds to growth. According to a recent New Home Trends Institute survey, half of consumers feel uncertain about the U.S. economy, with their concerns most closely tied to current economic conditions. As one builder explained, “The American consumer lacks confidence when it comes to making housing purchases.”

Affordability, increased supply, rising costs, municipal codes, and consumer sentiment will likely remain concerns for the single-family industry over the next few years. But builders remain optimistic. They recognize the need for new homes and are focusing efforts on finding the right opportunity—whether through smaller homes, new locations, different product types, or new technologies. All builders agreed that a decline in mortgage rates will increase traffic and sales, especially as prospective buyers can sell their resale home. In the current market environment, builders recognize that strong leadership, strategic marketing, and an innovative mindset are critical for establishing a competitive advantage, even amid persistent economic headwinds.