US Home Prices Rise 3.5% as Tariffs Slow New Construction

Subscribe to our free newsletter today to keep up to date with the latest construction news.

US home prices are projected to rise by 3.5%, following a trend of continued but slowing appreciation. At first glance, this may seem like a stable recovery signal. However, deeper indicators tell a different story.

Affordability remains a central concern as income growth fails to keep pace with price increases. While regional disparities still exist, the trend appears consistent: prices are inching upward, yet many buyers remain on the sidelines. For instance, states such as Florida and Texas, which saw rapid expansion over the last five years, are now experiencing a flattening of price momentum. In contrast, inventory pressures in parts of the Northeast continue to push valuations higher despite a lack of significant wage growth.

Behind these price figures lies an economic environment that continues to challenge both buyers and sellers. The apparent price stability masks severe affordability issues, stagnant construction output, and reduced housing mobility.

Tariffs on building materials are quietly reshaping the new home pipeline

New tariffs introduced on imported construction materials are having a measurable impact on the pace of new home construction in 2025. According to the NAHB/Wells Fargo Housing Market Index, these tariffs have added approximately $10,900 to the average cost of building a new home.

This increase is placing considerable stress on developers, particularly those focused on mid- and entry-level housing. Builder confidence, while not collapsing, has softened, and the number of new building permits filed has declined for the third consecutive quarter.

Rising costs associated with essential materials such as steel, aluminum, and lumber are not just delaying projects; they are reshaping them. Some developers have shifted toward multi-family or rental developments where margins can be more flexible. Others have reduced project scales or delayed openings entirely.

Mortgage rates are limiting both buyer enthusiasm and supply turnover

Forecasts suggest the average 30-year fixed mortgage rate will reach 6.75% by the end of 2025. Such a level constrains not only buyers but also current homeowners, many of whom refinanced during the low-interest period of 2020 through 2022. This results in a lock-in effect, where existing homeowners are reluctant to sell, further reducing the available housing stock.

As housing turnover slows, the number of listings falls and competition among buyers intensifies, particularly in high-demand areas. First-time homebuyers and those with lower credit profiles are disproportionately affected by this environment.

Beyond limiting transactions, higher mortgage rates discourage investment in housing upgrades or expansions, which compounds the overall stagnation in the market. As a result, inventory remains tight, and affordability becomes even more elusive.

The shift to renting as homeownership remains out of reach

Data from Fannie Mae’s April 2025 survey showed that 35% of respondents would prefer renting over buying, a figure that continues to exceed the long-term average. This shift is not merely attitudinal. It reflects changing economic realities and expectations.

Young professionals and middle-income earners are increasingly priced out of traditional ownership pathways, especially in urban cores. Simultaneously, institutional investors have expanded their presence in the rental market, targeting newly built communities and converting single-family units into long-term rentals.

This environment has fostered a pivot among developers toward build-to-rent strategies, especially in secondary metro areas. These communities offer amenities and layouts similar to traditional suburban neighborhoods but without the financial commitment or barriers associated with mortgages. The rental sector is absorbing much of the demand that ownership can no longer accommodate.

In response to growing pressure on housing affordability, cities such as Laredo, Texas, are deploying targeted strategies. Laredo’s recently approved draft plan allocates over $5 million in federal funds to address homelessness and affordable housing for the 2025–2026 fiscal year.

At the federal level, legislative efforts such as the American Housing and Economic Mobility Act of 2025 aim to expand housing stock, support down payment assistance, and modernize zoning codes. Although ambitious in scope, the bill faces challenges related to political will, funding limitations, and implementation timelines.

Sources:

• Reuters