Published Date 3/17/2025
The chicken or the egg. The straw that stirs the soup. However you want to refer to new construction — the industry that provides the shiny and the new — it’s now in full bore, influencing affordability in many areas, with the South seeing the biggest benefits, according the Real Estate News’ Dave Gallagher.
Heading into the spring homebuying season, questions continue to swirl. Will the Fed cut interest rates? Will economic policies drive up inflation? And have buyers already given up? The new homes industry can offer a few clues at a local level. So look there first.
Gallagher reports that a new study by First American Title found significant differences in home price appreciation depending on how many building permits were issued in a given metro. “Generally speaking, metro areas in the South have higher-than-average new home construction activity and are seeing affordability improve, while the Northeast and Midwest are seeing less construction — and higher home prices,” he says.
The knockout combination punch will be slowing home price growth along with more inventory as a result of increased construction, getting buyers off the sidelines this spring.
"Our analysis of recent regional construction trends suggests the degree to which the market is a lion or lamb will be influenced by recent homebuilding trends," Sam Williamson, senior economist at First American, said in the report.
Among the 50 largest markets, Austin, TX, had the highest rate of building permits per 1,000 households in February, with a slight decrease (down 0.14%) in home appreciation. Tampa saw the biggest decrease in home prices (down 3.76%) while also having a higher-than-average number of building permits issued.
In contrast, Pittsburgh — an area with below-average construction activity — posted the biggest annual increase in home prices (up 9.97%). The cities that issued the fewest residential building permits — Buffalo, New York, and Providence, Rhode Island — also saw prices jump by more than 9%, says Gallagher.
This correlation between building permits and price growth, however, did not ring true for San Diego and San Francisco, where home prices fell. And in Louisville, home prices jumped by more than 10% even after issuing more permits.
Inventory is key, as the more ready supply of homes for buyers to choose from, the more hope buyers express. As the 2025 home-buying season gets into full swing, increased residential construction activity offers a glimmer of hope for prospective buyers by boosting overall housing supply and, in turn, enhancing affordability, Gallagher predicts.
Regional trends, however, seem to portend that while this growth is not evenly distributed across the country, where builders are raising roofs they are also helping to slow or lower prices. Lots of those roofs are located in the South, which tends to have more available land and less restrictive zoning laws. Demand-side factors, like lower living costs and relatively more affordable housing options, will continue to attract new residents to these regions and further encourage additional construction — a virtuous cycle. Lots of eggs to be hatched.
And then there is the affordability “tightrope,” says Gallagher: “With buyers increasingly squeezed by high home prices and high borrowing costs, it doesn't take much to put homeownership out of reach.” A mere $1,000 increase in the median price of a new home would push 115,593 people out of the market, according to stats offered by the National Association of Home Builders, who reports that nearly 75% of U.S. households cannot afford to buy a median-priced new home, and in 23 states and the District of Columbia that share exceeds 80%.
"This indicates a significant disconnect between rising home prices and household incomes," said Na Zhao, an economist at NAHB.
As for borrowing costs? They will, of course, continue to influence affordability. Buyer demand for new and existing homes alike will feel the pinch, since no one knows where mortgage rates are going next. The Feds’ decision to lower rates is a crap shoot at this point. Gallagher reports that inflation numbers based on February data show— before many of the tariffs took effect —that any rate easing could be short lived. “Tariffs could keep mortgage rates elevated, but if they also spur a significant slowdown in the economy, that could send rates lower.”
The push-pull of economic factors will impact mortgage rates and consumer behavior and, ultimately, the performance of the housing market," said Lisa Sturtevant, chief economist at Bright MLS.
RealEstateNews, TBWS
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