New home sales in the United States have surged to their highest level in three years, signalling a potentially positive shift in the housing market. According to the latest data from the United States Census Bureau, 683,000 new homes were sold in 2024, marking an increase over the previous year.
As the market grapples with stubbornly high mortgage rates and a shortage of existing homes for sale, this uptick raises questions about the future of home prices and whether new construction can offer some relief to prospective buyers.
As home prices remain elevated, and mortgage rates hover near 7%, the prospect of more homes entering the market could bring a much-needed balance to supply and demand. Experts are now weighing whether the increased availability of new homes will help ease the pressure on buyers struggling with affordability.
New Construction Set to Increase in 2025
Industry experts, including Noelle Tassey, CEO of the real estate platform Redy, predict that new home construction will continue to rise in 2025. Tassey argues that this increased supply could alleviate some of the price pressures currently faced by buyers.
She suggests that more new builds could put downward pressure on home prices, as builders compete to attract price-sensitive consumers, especially in areas with higher demand.
According to Tassey, the United States is facing a shortage of approximately 4.5 million homes. This inventory gap has contributed significantly to rising home prices, with the median sale price of new homes in late 2024 nearing $419,200, according to the U.S. Department of Housing and Urban Development. Despite this increase in new sales, the market still lags far behind the peak levels seen in the mid-2000s, with 2005 seeing over 1.2 million new homes sold.
New construction in the Sunbelt region, which has been experiencing strong population growth, is expected to see continued demand. However, in these high-growth areas, the increase in supply may not be enough to offset the demand, keeping home prices elevated.
The Impact of High Mortgage Rates on Homebuyers
Mortgage rates have remained a significant factor in shaping the housing market. Despite the Federal Reserve’s rate cuts in the final quarter of 2024, the average mortgage rate for a 30-year fixed-rate loan remained close to 7%. This is a sharp contrast to the sub-3% rates that many buyers enjoyed during the pandemic.
While 7% may not be considered exceptionally high historically, it remains challenging for many buyers who have become accustomed to much lower rates. Tassey notes that prospective homeowners are particularly sensitive to these rates, making it essential for sellers and builders to adjust their expectations.
In a market where buyers are carefully considering their financial commitments, sellers who overprice their properties may face extended listing times, especially in areas with limited demand.
