After years of challenges fueled by soaring mortgage rates and low inventory, the spring 2025 housing market may finally offer some relief for prospective homebuyers. The market has long favored sellers, thanks to historically high home prices, elevated borrowing costs, and a limited supply of homes. These conditions, coupled with unmotivated sellers clinging to pre-2022 interest rates, created a frustrating environment—especially for first-time buyers. However, new data suggests that the balance may be shifting.

Realtor.com's February Housing Market Trends report highlights some of the first promising signs for buyers in recent years. Total home inventory rose 27.5% compared to February 2024, marking a significant increase in available homes for sale. Even more encouraging is the uptick in new listing activity, which reached its highest level since February 2021, a time when mortgage rates were still hovering below 3%. While current rates remain around 7%, this increase in inventory suggests that more sellers are entering the market, possibly recognizing that waiting for lower rates is no longer a viable strategy.

This shift in seller behavior is giving buyers more room to negotiate. With properties sitting on the market longer—an average of 66 days this February, up five days from a year prior—sellers are beginning to adjust their expectations. Price reductions are also on the rise, with a 2% year-over-year increase, the largest February gain in nearly a decade. This trend indicates that sellers are becoming more realistic about pricing in order to attract buyers in today's high-cost environment.

Chief Economist at Realtor.com, Danielle Hale, views the current market as one that is slowly trending toward a more balanced state. She notes that while mortgage rates remain elevated, the increasing number of listings and growing days on market could bring about a stabilization of supply and demand. If these trends continue into the peak homebuying season, buyers may find more opportunities, better pricing, and less competition than they have in recent years.

Though the housing market may not resemble its pre-pandemic form anytime soon, there are signs that the days of ultra-low inventory and sky-high demand are beginning to fade. Spring 2025 could mark the beginning of a more favorable landscape for buyers who have been waiting patiently on the sidelines. With inventory on the rise, price reductions becoming more common, and sellers more willing to negotiate, the coming months may offer the best chance in years to reenter the market with confidence.

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The custom home building sector is experiencing a modest resurgence, according to recent analysis from the National Association of Home Builders (NAHB), which examined Census Data from the Quarterly Starts and Completions by Purpose and Design survey. While the broader housing market has been heavily influenced by interest rate fluctuations, the custom home building segment has proven more resilient, showing growth after a brief period of market share decline.

During the fourth quarter of 2024, there were 47,000 custom home starts, representing a 7% increase from the same period in 2023. When looking at the full year, custom housing starts reached 181,000 — just under a 2% increase compared to 2023's total of 178,000. This gradual upward trend suggests a strengthening demand for contract-built homes that cater to individual preferences, even in a market where high interest rates have slowed other types of new home construction.

Currently, custom home building accounts for approximately 18% of all single-family housing starts, based on a one-year moving average. While this is a decrease from the sector's previous high of 31.5% in the second quarter of 2009, and lower than the 21% peak observed at the start of 2023, it reflects a stable and enduring niche within the home construction industry. Much of the decline in market share can be attributed to an increase in speculative home building, which gained traction in recent quarters.

It's important to note that the definition of custom home building used in this analysis is fairly specific. It refers only to homes built on a contract basis, where the builder does not hold tax ownership of the property during construction. This narrower view excludes homes intended for sale, meaning the data focuses exclusively on personalized construction projects commissioned directly by homeowners.

As housing trends continue to evolve, the custom home sector may remain an attractive option for buyers seeking greater control over design, layout, and features. Its relative insulation from interest rate pressures makes it a steady force in the housing market, particularly for buyers with the resources to tailor a home to their specifications. With steady growth and a loyal market segment, custom home building appears poised to maintain its role as a meaningful contributor to the broader housing landscape.

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Owning a home may be one of the biggest expenses you take on, but it also comes with one of the most valuable tax benefits available: the mortgage interest deduction. This tax break allows homeowners to deduct the interest paid on their home loans, potentially reducing their taxable income and overall tax bill. For some, particularly those with lower incomes and significant deductions, this benefit can even reduce what they owe the IRS to zero.

The amount you save depends on a few factors, including the size of your loan, the interest rate, and how far along you are in your repayment schedule. During the early years of a mortgage, interest makes up a larger portion of your monthly payment. For example, on a median-priced home of $419,200 with a 20% down payment and a 6.8% interest rate, homeowners can pay over $20,000 in interest in the first year alone. That amount, if eligible, could significantly lower your taxable income.

To take advantage of this deduction, however, you must itemize your deductions instead of taking the standard deduction. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. Only about 10% of tax filers itemize, according to TurboTax, so to benefit from deducting mortgage interest, your total itemized deductions — including things like property taxes, charitable donations, and state and local taxes — must exceed those standard deduction thresholds.

Eligibility for the mortgage interest deduction is broad, but there are some limits based on the size and timing of your loan. If you took out your mortgage after December 15, 2017, you can deduct interest on up to $750,000 of mortgage debt (or $375,000 if married filing separately). For mortgages originated on or before that date, the limit is higher — $1 million for joint filers or $500,000 for separate filers. These limits apply across a range of loan types, including primary and secondary home loans, home equity loans, and refinanced mortgages.

In order for home equity loans and HELOCs to qualify, the funds must be used to buy, build, or substantially improve the home that secures the loan. If you refinance your mortgage, you can still deduct the interest as long as the new loan doesn't exceed your original balance, unless you're using the additional funds for qualified improvements. Interest paid on mortgage points may also be deductible, assuming your loan falls within the appropriate guidelines.

It's important to note what the deduction does not cover. Payments toward your loan's principal, your down payment, or mortgage insurance premiums do not qualify. To claim the mortgage interest deduction, you must itemize your deductions using IRS Form 1040 Schedule A. The good news is that most modern tax software can guide you through the process, making it easier to ensure you don't leave money on the table.

Understanding the mortgage interest deduction can be key to maximizing the financial benefits of homeownership. If you're eligible, taking the time to itemize your deductions may result in meaningful tax savings, helping to offset the ongoing costs of owning a home.

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Smart Strategies to Increase Home Equity in 2025

As the economic landscape continues to shift in early 2025, many homeowners are reevaluating their financial strategies, with home equity standing out as a valuable resource. For those who purchased homes during the recent period of high mortgage rates, refinancing could offer a meaningful opportunity to improve financial positioning. For instance, if you secured a mortgage at or near 8% in 2023 and rates have since dropped to 7% or below, refinancing might significantly reduce your monthly interest payments. That savings can be redirected toward your loan principal, gradually increasing your home equity. Still, it's essential to run the numbers, as refinancing isn't right for everyone. You'll need to factor in closing costs and determine how long you plan to stay in your home to ensure the savings outweigh the expenses.

Another way to steadily build equity is by reviewing your current payment schedule. If your monthly payments are manageable, consider switching to a bi-weekly schedule. Instead of making 12 monthly payments a year, you'll make 26 half payments, which adds up to one extra full payment annually. Over time, this strategy can chip away at your principal balance, reduce the total interest paid, and help you pay off your mortgage sooner. It won't transform your equity overnight, but it can make a noticeable impact over the long term, especially if paired with other smart financial moves.

For homeowners aiming to borrow against their home's equity later this year, acting now to boost that equity could make a big difference. Home equity loans and home equity lines of credit (HELOCs) remain attractive due to their lower interest rates compared to personal loans or credit cards. With the average home equity nearing $320,000, the potential for borrowing is significant—if the equity is available. However, lenders typically require a healthy amount of equity before they approve these types of loans, making it essential to increase your property's value and reduce your outstanding mortgage balance.

One practical strategy to achieve this is through carefully selected home improvements. Not all renovations yield a high return, so focus on projects known to increase property value, such as kitchen upgrades, bathroom additions, or curb appeal enhancements like landscaping. Avoid highly personalized renovations that may not appeal to future buyers, as these can actually hurt resale value. By approaching home improvement with a strategic mindset, you can enhance both your home's worth and your equity.

Ultimately, increasing your home equity in 2025 involves a mix of thoughtful planning and proactive steps. Whether it's refinancing, adjusting your payment schedule, or investing in high-impact renovations, each action contributes to building a stronger financial foundation. With economic conditions in flux and borrowing opportunities potentially shifting later in the year, now may be the ideal time to explore these options. By doing so, homeowners can position themselves to make the most of their property's value and access the capital they may need in the months ahead.

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As 2024 nears its conclusion, the housing market has seen a notable increase in single-family home construction permits, while multifamily development has experienced a significant slowdown. Over the first eleven months of the year, the total number of single-family permits issued nationwide reached 912,910, reflecting an 8.2% increase compared to the 843,654 permits issued in the same period in 2023.

Single-Family Construction Gains Across All Regions The increase in single-family permits was seen across all four U.S. regions, with the Midwest leading the way at 11.5%, followed closely by the West at 11.4% and the Northeast at 9.4%. The South, while still growing, saw a smaller increase of 6.3%.

At the state level, 44 states saw growth in single-family permits. Montana led the country with a 31.4% increase, while Missouri posted the smallest gain at 2.6%. Six states and the District of Columbia reported declines in single-family permits.

Texas remained the leader in single-family construction, issuing 146,843 permits in the first eleven months of the year, an 8.8% increase compared to the same period in 2023. Florida, the second-largest state for permits, saw a slight 0.3% decline, while North Carolina, ranking third, posted a 7.0% increase.

Multifamily Permits Decline in Most Regions While single-family construction grew steadily, the multifamily sector saw a sharp decline. Nationwide, multifamily permits dropped 14.5%, falling from 520,919 in 2023 to 445,357 in 2024.

Three out of four regions experienced declines in multifamily permits:

The West saw the largest decline, dropping 29.7% The South followed with a 19.6% decrease The Midwest fell slightly, down 3.1% The Northeast was the only region to see an increase, jumping 32.6%, driven primarily by a surge in permits in New York City. State-Level Trends in Multifamily Permits Out of all 50 states, 21 states saw an increase in multifamily permits, while 29 states and the District of Columbia recorded declines.

New York led the nation with a 113.8% increase, more than doubling its number of multifamily permits from 14,544 in 2023 to 31,098 in 2024. On the other hand, Idaho saw the biggest drop, falling 54.3% from 5,469 to 2,497 permits.

Among the top states for multifamily permits:

Texas issued the most multifamily permits but saw a 21.3% decline Florida, the second-highest state, experienced a 25.0% decline California, ranking third, saw a 32.0% drop What These Trends Mean for the Housing Market The continued growth of single-family home permits suggests that builders are responding to demand for homeownership, especially as affordability challenges persist in the existing home market. The slight decline in single-family permitting in some states could indicate localized slowdowns, but overall, the sector remains strong.

The decline in multifamily permits points to a shift in the rental market, possibly influenced by rising construction costs, changing demand patterns, and concerns over long-term rental affordability. The Northeast's significant increase in multifamily permits stands in contrast to the rest of the country and highlights the unique dynamics of urban housing markets like New York City.

As 2025 approaches, the housing market will likely continue adjusting to economic conditions, mortgage rates, and shifting buyer preferences. With a growing number of single-family homes in the pipeline, prospective homeowners may see increased options, while the multifamily sector's slowdown could influence rental availability and pricing in key metro areas.

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The U.S. housing market ended 2024 on a high note, with new single-family home sales rising more than expected in December. Despite challenges posed by elevated mortgage rates, the demand for new homes remained resilient, contributing to an overall increase in housing activity. The latest data from the U.S. Census Bureau highlights a market that is slowly regaining momentum, driven by increased inventory and competitive pricing.

Strong Finish to 2024

New home sales climbed 3.6% in December to a seasonally adjusted annual rate of 698,000 units, surpassing economists' expectations. Additionally, the November sales pace was revised upward to 674,000 units, reflecting stronger-than-initially-estimated demand. On a year-over-year basis, new home sales in December rose 6.7%, signaling sustained buyer interest in newly built properties.

In total, 683,000 new homes were sold in 2024, a 2.5% increase from the previous year. The median price of new homes in December reached $427,000, marking a 2.1% annual increase. However, price growth has slowed as more new homes enter the market, giving buyers additional options and leverage in negotiations.

Regional Differences in New Home Sales

The growth in new home sales varied by region. The Northeast saw the largest jump, with sales soaring 41.7% in December, while the West followed with a 20.3% increase. Conversely, sales declined in the more heavily populated South, falling by 2.1%, and in the Midwest, where they dropped 3.3%. These shifts reflect regional differences in housing supply, affordability, and economic conditions.

Rising Inventory and Smaller, More Affordable Homes

The supply of new homes increased in December, reaching 494,000 units, the highest level since 2007. While 268,000 of these homes were still under construction, 118,000 were completed and ready for occupancy—the most since 2009. The remaining 108,000 homes had yet to break ground, setting a new record for unbuilt inventory.

Homebuilders have been adjusting to market conditions by focusing on smaller, more affordable homes to attract budget-conscious buyers. This strategy has helped keep newly built homes competitively priced with existing homes, a key factor in sustaining demand despite high borrowing costs.

Mortgage Rates Continue to Weigh on Buyers

While new home sales have remained resilient, mortgage rates continue to be a limiting factor for many prospective buyers. The average 30-year fixed-rate mortgage remains just below 7%, a significant increase from previous years. Higher borrowing costs have made it more difficult for buyers to afford homes, though builders have responded by offering mortgage rate buydowns and other incentives.

Newly constructed homes are more likely to offer rate buydowns than existing homes, making them an attractive option for buyers seeking relief from high monthly payments. According to a recent survey, new homes are now priced competitively with existing homes and are far more available, providing an advantage in today's tight housing market.

Builder Caution Amid Higher Inventory

Despite strong sales, the increase in completed inventory may cause builders to exercise caution in starting new projects. At the current sales pace, it would take 8.5 months to clear the supply of new homes on the market, slightly down from 8.7 months in November. Builders are likely to continue managing inventory carefully to avoid oversupply, particularly if mortgage rates remain high.

The outlook for new home sales remains optimistic, though challenges persist. High mortgage rates and economic uncertainty could temper demand, but builders' ability to offer financial incentives and adjust home sizes should help sustain momentum. The ongoing supply of new homes, combined with price stabilization, suggests that 2025 could continue the positive trends seen in late 2024.

With more buyers turning to new construction for affordability and availability, the housing market appears to be navigating its way through the challenges of high interest rates and economic fluctuations. If inventory remains strong and mortgage rates stabilize, new home sales could see further gains in the coming year.

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The State of the New Home Market & Trends and Insights from 2024

As 2025 begins, reflecting on the changes in the new home market over the past year provides valuable insight into where the housing industry is headed. In 2024, the new construction sector remained strong, with over a million new single-family homes completed, continuing the upward trend from 2023. While mortgage rates remained a challenge for many buyers, homebuilders worked to make new construction more accessible by offering smaller, more affordable homes and financial incentives like mortgage rate buydowns.

Growth in New Construction

In 2024, 1,020,600 newly built single-family homes were completed, marking an increase from the previous year. This growth reflects a continued effort to address the housing supply gap that has persisted since the Great Recession. Despite affordability concerns, builders adapted by offering competitively priced homes, bringing the median listing price for new construction down slightly to $449,967 in the fourth quarter, a 0.7% decrease year over year.

Notably, the price gap between new and existing homes has continued to shrink. In the fourth quarter of 2024, the new construction premium—the percentage difference between the price of a new home and an existing one—dropped to 13.7%, the lowest recorded for this period since 2020. More builders are focusing on cost-conscious buyers by constructing smaller homes that align more closely with existing-home prices.

Regional Differences in New Construction

New construction trends varied significantly by region. The South emerged as the most buyer-friendly market, with new homes making up 23% of listings and carrying the lowest price premium at 8.9%. The West followed closely, offering a low 5.8% premium on new builds, though new homes made up a smaller share of the market at 14.4%.

The Northeast and Midwest, on the other hand, had significantly higher new construction premiums at 76.2% and 64.8%, respectively. This stark difference is influenced by the age of existing homes in these regions. The average home on the market in the South and West is around 40 years old, whereas in the Midwest and Northeast, the average home is 60 to 69 years old. With older housing stock, newly built homes in these regions command a much higher price, contributing to the larger premium.

The Role of Mortgage Rate Buydowns

With mortgage rates fluctuating around the 7% mark, affordability remained a major hurdle for homebuyers in 2024. To help ease the burden, homebuilders increasingly turned to mortgage rate buydowns, a financial incentive that temporarily or permanently lowers a buyer's interest rate in exchange for an upfront payment.

Newly built homes were far more likely to offer these buydowns than existing homes. In the fourth quarter of 2024, 4.6% of new construction listings featured mortgage rate buydowns, compared to just 1.2% of existing home listings. Builders have greater flexibility to offer financial incentives like buydowns, making new homes a more attractive option for buyers looking to reduce their monthly mortgage payments.

Interestingly, builders tended to offer buydowns on more affordable properties, further expanding homeownership opportunities. The median listing price of a new home with a buydown was $457,938, compared to $439,953 for those without. In contrast, existing homes offering buydowns were generally larger and more expensive, with a median price of $467,600 compared to $390,967 for those without.

Looking Ahead to 2025

With new construction continuing to gain market share and mortgage rate buydowns proving to be a valuable tool in making homeownership more affordable, 2025 may see further shifts in the housing landscape. Builders will likely continue adjusting to market conditions by offering smaller homes, financial incentives, and flexible financing options to attract buyers.

As mortgage rates remain a key factor in affordability, the industry will be watching closely to see if rates begin to stabilize or decline. If rates remain elevated, the popularity of mortgage rate buydowns and other financial incentives could grow even further, shaping how buyers navigate the new construction market in the coming year.

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