Homebuilder Update 2025: As affordability tightens and sentiment dips, the single-family sector adapts with efficiency, incentives and evolving buyer priorities - July 2025

By Meg Scarbrough

The U.S. homebuilding market enters the second half of 2025 navigating a storm of macroeconomic pressures. While the country faces a persistent housing shortage, higher interest rates, material tariffs and inflationary pressures have stalled what many expected to be a year of recovery based on pent-up demand.

According to the National Association of Home Builders (NAHB), overall housing starts fell nearly 10% in May, with multifamily production down more than 30% year over year, dragging construction activity to its lowest level in five years. Meanwhile, builder confidence has dipped to its third-lowest reading since 2012.

“What we call this year is a missed opportunity, because we really did have a solid macroeconomic condition last year,” says Danushka Nanayakkara‑Skillington, assistant vice president of forecasting and analysis at NAHB. “Tariffs and uncertainty have put a real big damper on consumer confidence, which is really important when you think about the housing market.”

Instead of a rebound, NAHB has revised its forecast: single-family starts are now expected to decline by 5% in 2025-marking a sharp shift from earlier projections for modest growth.

Affordability: The defining challenge

Even with a long-standing shortage of homes, many would-be buyers are sitting on the sidelines.

“Affordability is one that’s really rearing its head right now,” says Jon England, vice president of builder and multifamily at Shaw. “When rates are high, people stay in place rather than sell. … As long as rates stay above 6%, that’s probably not going to change.”

Buyers, especially first-timers, are increasingly priced out. Construction costs-from lumber and labor to flooring and appliances-have climbed steadily over the past two years, forcing builders to slash prices, simplify offerings and offer aggressive incentives.

“Almost 30% of builders are saying you have to do price cuts and offer sales incentives,” says Nanayakkara‑Skillington. “Construction costs, including flooring, have gone up.”

“Incentives are at an all-time high,” England adds. “Builders are having to incentivize homebuyers in a sluggish market. Cancellations on contracts are also at a recent history high.”

Meanwhile, inventory is building. Homes are staying on the market longer than they were a year ago, and buyers are more cautious, driven by factors including greater leverage, limited urgency and tighter personal budgets. 

Market fundamentals still favor growth

Despite the turbulence of 2025, the underlying fundamentals of the housing market haven’t changed, chief among them the nation’s persistent structural housing shortage.

“Housing is short, or the demand is high for housing in the U.S.,” says England. “Some people call it 1.5 million, some people call it 3.5 million-so somewhere between 2,000,000 to 3,000,000 homes.” While estimates vary, the deficit is widely acknowledged across the industry.

Danushka NanayakkaraSkillington puts the shortfall at approximately 1.5 million units. “Demographics are in our favor,” she explains. “There’s a strong long-term case for housing, especially as Millennials and now Gen Z continue to form households.” 

Household formation remains a critical demand driver, even as affordability challenges and rate uncertainty weigh on short-term sentiment.

However, meeting that demand is another story. Builders continue to face mounting constraints-most notably on the labor front. “We are short about 250,000 construction workers right now,” says NanayakkaraSkillington. “The labor shortage is a structural issue that’s persisted since the Great Recession.” 

Despite efforts to recruit and train new workers, the gap remains stubbornly wide, particularly in key trades like framing, electrical and plumbing. 

England echoes the concern, noting that even a drop in interest rates wouldn’t fully unlock production. “Builders can’t solve for everything. Even if rates fell tomorrow, the labor pipeline and materials volatility would still limit their output,” he says. “There’s no silver bullet-it’s going to take time, coordination and sustained investment in workforce development.”

Regional markets: The South leads

While national figures paint a picture of sluggishness, performance varies dramatically by region. “The top ten single-family markets in the country are basically all in the South,” says Nanayakkara‑Skillington. “Texas, Florida and the Carolinas continue to see the strongest new construction activity.” 

Houston and Dallas, she notes, build more homes annually than the entire state of California.

The Southeast’s relative affordability, population growth and business-friendly climate have made it a new construction hotspot. In contrast, more expensive markets-particularly in the Northeast and on the West Coast-are seeing deeper slowdowns, especially in entry-level housing.

“Major metros are being more impacted than suburban or rural areas,” England says. “Trade-up, luxury and senior living tend to be more insulated.”

A new approach to homebuilding

As interest rates and labor costs remain stubbornly high, builders are adjusting strategies.

Publicly traded builders now account for more than half of the market, with their share continuing to climb. “The public builders are about 53% share of the total new construction space,” England says. “Some believe it will be above 60% by the end of the year.”

These larger builders are streamlining designs, limiting customization and delivering homes faster by focusing on scalable models and predictable supply chains.

“There’s always going to be that paradox of choice,” says Christine Slaughter, vice president of design and marketing at Shaw. “So, there is a benefit to streamlining.”

Spec homes dominate, and the “personalization” piece that once defined the new home experience has been scaled back. But buyers still want a sense of individuality. 

“Builders aren’t allowing much artistry,” Slaughter says, “but we’re seeing creative touches like contrasting islands or pantry nooks in wood tones.”

Design still matters-even in a value market

Design expectations haven’t disappeared. In fact, for many buyers-especially those paying more for less square footage-flooring, color and lighting become even more important. 

“Everyone’s house is kind of starting to look the same…but what I’ve seen in the last year and a half is that personalization is starting to come back,” Slaughter says. “People are realizing, ‘I want to build my home for me. I want it to be my sanctuary.’”

Shaw has identified five key design themes that resonate with today’s consumers:

• Quiet Luxury: Understated elegance and enduring craftsmanship

• Organic Modern: Clean lines with natural materials and wellness cues

• Dopamine Décor: Joyful, bold expression through color and texture

• Epic Nostalgia: A revival of ’90s and Y2K styles (including honey oak)

• Dark Academia: Moody, dramatic interiors rooted in storytelling

“Things have really warmed up-warm honey tones, mid-tones, mushroom hues,” Slaughter says. Still, many products retain subtle grey undertones to reassure buyers concerned about resale value. “They want that safe choice.”

Flooring: Form, function and fast installation

With tighter margins and longer cycle times, builders are leaning hard on products that offer performance, speed and appeal-without bloating budgets. LVT, particularly rigid core formats, remains dominant in the builder channel.

“Luxury vinyl is still king-1,000%,” says Slaughter. “It’s taking share from all categories,” adding that Shaw’s investments are making LVT more realistic than ever. “You see a knot, you feel a knot. You have to touch it to realize it’s not real wood.”

Its waterproof construction, fast installation and durability make it a favorite in every room except full baths and mudrooms. England adds that it also reduces callbacks and offers builders more consistent lead times. “It’s a win-win for builders and homeowners.”

In bedrooms and bonus spaces, carpet-particularly in tonal or tailored patterns-is holding strong as a cost-effective comfort upgrade. There’s renewed interest in loop pile constructions and carpets made with recycled content, especially in entry-level and mid-range homes where buyers appreciate the softness without sacrificing stain resistance. “Carpet still delivers great value per square foot,” says England. “And with today’s cleaner patterns and flecked colorways, it fits a wide range of interior styles.” 

In bathrooms and laundry rooms, builders are favoring larger-format porcelain tiles-think 12”x24” and beyond-for a modern look and fewer grout lines. Matte finishes and stone visuals are popular, offering a spa-like feel while keeping maintenance in check. Porcelain continues to dominate for its performance in wet areas, but textured finishes, linear patterns and even terrazzo-inspired visuals are making inroads as homeowners seek elevated aesthetics in functional spaces.

And in select markets, wood-look porcelain tile remains a premium staple, especially in open-concept layouts where continuity and durability are key. “It’s ideal for indoor-outdoor transitions or for homeowners who love the look of hardwood but need something more water-friendly,” says Slaughter.

But performance is only half the equation. Consumers, especially post-Covid, are focused on health, cleanability and sustainability.

Slaughter adds, “There’s a staggering stat: we spend over 90% of our time indoors. That changes how we think about the products we live with.”

Remodeling’s rising importance

As affordability and supply issues continue to constrain new construction, remodeling is taking on a bigger role in the industry.

“The residential remodeling market is becoming more and more important,” Nanayakkara‑Skillington says. “We expect a remodeling super-cycle.”

Homeowners who bought before 2020 are sitting on record-high equity and are reluctant to give up low mortgage rates. As a result, many are opting to update instead of move.

“Homes are older, people are staying in them longer and they’ve built a lot of equity-this bodes well for remodeling, including flooring,” she adds.

This shift presents opportunities for dealers, installers and flooring manufacturers-especially those who can serve both the builder and remodel channels with flexible, design-forward products.

Outlook: Cautious but strategic

If the first half of 2025 has been marked by stalled momentum, the rest of the year will hinge on rates, inventory absorption and buyer confidence.

“Builders are being cautious but not sitting still,” England says. “We want to be a partner to push through the challenge or the headwind. How do we bridge the valleys of the challenges and play the long game?”

For many builders and flooring suppliers, the answer lies in efficiency, simplification and selectively investing in what today’s buyer values most: function, personalization, health and value.

“The big focus is on the standard cost of a home,” England says. “The more homebuyers you can move off of standard, the better the profitability of the whole chain really works out.”

It may be a slower market, but it’s a more thoughtful one-and those who meet the moment with practical creativity are poised to come out ahead.