Builders tap pent-up demand for new homes

Newly built homes are becoming more affordable than resale homes, but affordability challenges remain.

January 2, 2025

Sales of newly built homes, which are recorded at the contract signing, jumped 5.9% in November. The South and Midwest were responsible for the gains in the month. Post-hurricane activity in the Southeast helped. 

The median sales price fell to $402,600, the lowest in almost three years. Builders have been pivoting to smaller, more affordable homes to attract sidelined first-time buyers. The share of homes sold for under $300,000 in November jumped to 25%, the highest share since August 2021. The largest builders have been able to make the pivot more quickly while offering mortgage rate buydowns and other discounts. This has shown up in a bifurcation of inventory available for sale; the largest builders have the lowest unsold inventory.

Separately, existing home sales, which are recorded at the contract signing, rose 4.8% in November to the highest level since March. Strong activity reflects the short-lived fall in mortgage rates prior to the initial rate cut by the Federal Reserve in September. Mortgage rates have climbed by almost one percentage point since the Fed began rate cuts. This put added pressure on affordability challenges, which span insurance, real estate taxes and home maintenance costs.

According to the National Association of Realtors, the median age of the first-time buyer in 2024 was 38 years old, the highest on record. This is one of many reasons that millennials remain skeptical about the health of the economy, as they have been unable to achieve the same milestones as previous generations. 

Additionally, the share of first-time buyers in the market fell to the lowest level since records began in 1981. High mortgage rates are only one part of the affordability challenge. The downpayment required for first-time buyers in 2024 was the highest since 1997 and for repeat buyers since 2003.

Builders are not able to ramp up fast enough in the face of strong demand and population growth. According to the Census Bureau’s newly released population statistics for 2024, immigration accounted for 2.8 of the 3.3 million jump in residents from a year ago. Overall population growth was the fastest since 2001. This is the same time that builders are facing land and labor shortages, as well as elevated material costs. They have managed to build about one million single-family homes per year over the last few years, significantly lower than the three million needed to meet burgeoning demand.

The new administration has pledged to open federal lands for a variety of purposes, including new home construction. It is unclear whether those shifts will be enough to lift what builders now consider a million-unit speed limit on new single-family starts. 

The median sales price fell to $402,600, the lowest in almost three years.

photo of Yelena Maleyev

Yelena Maleyev

KPMG Senior Economist

Bottom line

The US is still short about three million homes needed to meet changing demographics and the pent-up demand in the market. The problems are structural and go well beyond aging baby boomers and empty nesters. More supply is needed in high-demand, low affordability markets. Uncertainty over immigration and tariffs are hurdles to ramping up construction in 2025. Indeed, most builders are expecting consolidation. 

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Image of Yelena Maleyev
Yelena Maleyev
Senior Economist, KPMG Economics, KPMG US

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