A Sneak Preview Of '25: A Tale Of Two Homebuilding Markets

John McManus -
The market will favor the few."

A challenging year ahead for U.S. homebuilding is an opportunity for some.

When COVID-19 first struck, took hold, and in short order, upended life as we knew it to be at the start of 2020, the question was this:

Was the cascade of change the pandemic brought with it introducing unprecedented new conditions and starting new trends from scratch? Or, rather, did Covid's turbulence and disruption merely accelerate business, societal, and economic trends already well underway?

Coming up on five years in, it's getting clearer now that the answer to the "blip-or-trend" question is "a blip." Most of the important trends – particularly those challenging and yielding opportunities in new home investment, real estate development, construction, and marketing and sales – predated the pandemic but took a dramatically accelerated path to where they had been headed during the past almost 36 months.

This reality defines the outlook for 2025, a year set to test the resilience and adaptability of homebuilders across the U.S. Capital-rich enterprises with strong operational foundations are poised to seize opportunities, while smaller, constrained players face an uphill battle.

The backdrop includes shifting demographics, persistent affordability challenges, and a policy environment likely to bring both relief and complexity. Builders who focus on efficiency, demographic alignment, and strategic market positioning will be best equipped to navigate these challenges.

Key Predictions for 2025

1. Modest Growth Despite Persistent Demand

The housing market remains undersupplied, but growth in starts and sales will be muted. Publicly traded and regional builders with deep financial resources are expected to continue outpacing private builders, leveraging their capacity to manage standing inventory and offer buyer incentives.

Elevated inventory levels—the highest in over a decade—will slow sales paces and constrain margins, particularly in oversupplied markets.

2. Demographic Shifts Shape Demand

The average age of first-time homebuyers has climbed to 38, while repeat buyers now average 61. Builders catering to active adult and luxury segments, such as Toll Brothers and Pulte, are well-positioned to capture this demand. The broader market, however, will struggle with affordability challenges that keep younger buyers on the sidelines.

3. Affordability Challenges Drive Builder Strategies

Mortgage rates hovering around 6.8% and affordability pressures will compel builders to adjust. Expect more smaller homes, fewer buyer options, and heavy incentives to sustain sales. Inventory strategies will emphasize quick-move-in homes to meet buyer needs in a volatile rate environment.

4. Regional Disparities Remain Stark

Geographic dynamics play a significant role. Florida and Texas face rising inventory and falling prices, while the Midwest and Northeast see modest price appreciation due to constrained supply. Sunbelt markets, which benefitted from pandemic-driven migration, now see demand slow as migration levels return to pre-pandemic norms.

5. Rental Market Normalization

Single-family rental (SFR) markets will cool, with build-to-rent (BTR) development forecasted to drop sharply. Rising for-sale inventory and elevated multifamily supply contribute to moderating rent growth. Long-term demand, however, remains supported by affordability challenges and stable renter finances.

6. Consolidation and M&A Gain Momentum

The trend of “big getting bigger” continues as well-capitalized enterprises consolidate market share through acquisitions. Vertical integration will become increasingly common, with builders taking on more land development and even manufacturing to protect margins.

Strategic Takeaways for Homebuilding Leaders

As 2025 unfolds, homebuilding enterprises face a “two-speed” market. Large, well-capitalized players will enjoy tailwinds from structural advantages, while smaller firms contend with tighter constraints. Strategic imperatives include:

  • Targeting Niche Demographics: Active adult and luxury markets remain robust demand drivers.
  • Focusing on Efficiency: Smaller home formats, streamlined operations, and modular construction can help balance affordability pressures.
  • Leveraging M&A Opportunities: Capitalize on distressed assets or struggling competitors to expand.
  • Tailoring to Regional Dynamics: Adjust strategies for inventory and pricing based on local market conditions.

The year ahead demands adaptability and a sharp focus on the fundamentals of efficient, customer-driven operations. For those positioned to act decisively, the opportunities remain significant.

And yes, you're right. Visionary leaders have had their team members and organizations headed in all four of these directions for years now. The pandemic and its aftermath have accelerated the rate of transformation required to keep pace with the forces of social, technological, economic, and political change.