New Home Construction Jumped 6% to End 2025

Min 1:

New home construction ended 2025 on a surprisingly strong note.

Housing starts jumped 6.2% in December to an annual pace of 1.4 million homes according to Census Bureau data released last week—beating all analyst estimates.

This came after a 3.9% increase in November. Two straight months of gains suggest builders are gaining confidence despite a rocky year overall.

The West led the surge with starts jumping 37.5%, while the Northeast and Midwest saw smaller gains.

But here's the catch: even with that December spike, total housing starts for 2025 came in at 1.36 million—down slightly from 2024.

Single-family starts fell 7% for the year while multifamily jumped 16.6%. The year was a disappointment for builders overall.

Mortgage rates dropping toward 6% in late 2025 helped fuel the December optimism.

When rates fell from summer's 7% range down to around 6.25% by year-end, builders bet that lower borrowing costs would bring buyers back to the market.

Min 2:

The problem is buyers didn't show up like builders hoped.

Despite lower rates and more construction, people stayed on the sidelines. Home prices remain too high, downpayments feel impossible, and many buyers remember when mortgages cost 3%.

Builder confidence fell for the second straight month to start 2026—hitting 36 in February according to the National Association of Home Builders.

That's about where sentiment was during some of the weakest housing markets in recent years.

Forty percent of builders cut prices in January—the third month in a row at that level. The average price cut was 6%, up from 5% in December.

And for eleven straight months, over 60% of builders offered incentives like rate buydowns or free upgrades just to move homes.

If you're buying a new home right now, you've got serious negotiating power. Builders are offering the biggest discounts and incentives since 2020.

They'd rather sell at a small loss than carry empty inventory into an uncertain market.

Min 3:

Compare building a new home versus buying existing, and new construction looks increasingly attractive.

Builders are throwing in $20,000-$30,000 in incentives—covering closing costs, buying down your mortgage rate, or upgrading finishes for free.

An existing home seller might budge $5,000 on price. A builder will cut 6%, buy your rate down from 6.5% to 5%, and throw in granite countertops.

On a $400,000 home, that's $24,000 in price cuts plus potentially $15,000-$20,000 in rate buydown costs the builder absorbs.

Building permits—which signal future construction—rose 4.3% in December after falling in November.

Interestingly, multifamily permits jumped to the highest level since August 2023. Builders see rental demand staying strong even if home sales struggle.

Buy a new construction home right now and you're getting the best deal builders have offered in years.

They're motivated, inventory is sitting, and they need sales to keep their crews working and banks happy.

Min 4:

Individual buyers have advantages over investors when builders are offering big incentives.

You can live in the home and take advantage of rate buydowns that investors typically can't access. Builders prioritize owner-occupants for their best deals.

The construction surge in December happened despite builders facing labor shortages, high land costs, and regulatory hurdles in many markets. They're building anyway because they believe 2026 will be better—but they're being cautious about starting too many new projects.

Many builders are working through standing inventory before ramping up speculative builds again.

Once existing homes sell and the economic outlook clarifies, starts should respond more to the expanded community footprint builders created.

The risk is that if buyers don't return soon, builders will pull back hard. Housing starts could fall further in early 2026—especially with harsh winter weather hitting the South (the biggest housing market) in January and February.

Min 5:

Any buyer can capitalize on builder desperation by negotiating aggressively right now. Builders need sales more than buyers need to buy immediately—and that power dynamic creates opportunity.

With 40% of builders cutting prices and 65% offering incentives, you're shopping in a buyer's market for new construction.

Walk into model homes knowing the builder will negotiate on almost everything to close deals.

Investors should look at the multifamily permit surge as a signal. Builders are betting on rental demand staying strong even as homeownership becomes less affordable.

Building permits for apartments hit the highest level since August 2023 in December.

Remodeling and repair spending will grow mid-single digits in 2026 and accelerate to high single digits in 2027 according to forecasts.

Homeowners who postponed projects due to rate uncertainty are ready to renovate—creating opportunities for contractors and suppliers.

Takeaway:

New home construction jumped 6.2% in December 2025 to 1.4 million units annually—the strongest month-to-month gain in months as builders bet on lower mortgage rates bringing buyers back.

The West saw starts surge 37.5% while other regions posted more modest gains.

Despite the December spike, 2025 overall disappointed builders. Total starts fell slightly from 2024, and builder confidence dropped to 36 in February—near multi-year lows.

Forty percent of builders cut prices in January with average reductions hitting 6%.

Individual buyers win because builder desperation creates negotiating leverage unavailable in years.

Rate buydowns, closing cost credits, price cuts, and free upgrades combine to save $30,000-$50,000 on $400,000 homes compared to buying existing properties.

Builders are working through standing inventory before starting aggressive new construction.

They face labor shortages, high land costs, and regulatory barriers—but they're building anyway betting 2026 improves as rates potentially drop further.

Move in the next 90 days to buy new construction while builders remain desperate for sales. Negotiate every aspect—price, rate buydowns, upgrades, closing costs—knowing builders will deal to avoid carrying empty inventory. Target communities with multiple standing inventory homes where builders have the most pressure to close deals.

Wait until spring and builders might pull back if sales don't materialize, reducing inventory and your negotiating power.