Builders Are Navigating the Crosswinds
Builders are navigating a housing market shaped by both challenges and opportunities. High mortgage rates, still elevated construction costs and labor shortages continue to weigh on margins and slow sales, particularly in markets that saw the steepest pandemic-era price gains. Many builders are turning to incentives like mortgage buy-downs and adjusting product mixes with smaller or multi-generational homes to keep buyers engaged. Although materials inflation has cooled from its peak, costs remain above pre-pandemic levels and finding skilled labor continues to be difficult. These pressures have dampened builder confidence, yet demand hasn’t disappeared, with Sun Belt metros still drawing buyers thanks to strong job growth and migration trends.
Despite these headwinds, longer-term fundamentals give builders reason for optimism. The U.S. still faces a housing shortage of nearly 3.8 million units, particularly in entry-level and family housing, creating a strong base of unmet demand. Millennials, now in peak household formation years, are driving demand for suburban homes that balance affordability and functionality, with preferences shifting toward flexible layouts, home offices and outdoor space. Household formation rebounded strongly in 2024 and continues to grow, signaling ongoing demand for both ownership and rental options. Builders that can control costs, diversify offerings, and stay disciplined in land strategy will be well-positioned to benefit from these demographic and supply-demand tailwinds even as short-term turbulence continues.
