Will Home Construction Costs Go Down in 2025? 

Building a house offers an excellent opportunity to customize every feature, choose the perfect location, and construct a home you and your family will love for years. However, custom home building is no small task, and choosing the right time to build a home is just as important as selecting the right materials and designs. 

The economy has seen its ups and downs since the 2020 COVID-19 pandemic. Now, five years out from this event, many Americans are more than ready to return to economic stability. Will home construction costs go down in 2025? This guide shares everything you need to know about building a home in 2025, including economic projections and other important considerations. 

2025 Projections That May Impact Construction Costs

Home construction costs hinge on a range of economic, political, and societal factors. The costs of materials and labor directly impact the cost of constructing a home, but other factors, such as the housing market as a whole, also play a major role. 

While 2025 has only just begun, expert projections can inform your decision to build a home this year. Keep these projections in mind when determining whether home construction makes sense this year. 

Loan Interest Rates To Decrease Gradually

Mortgage interest rates have soared over the past few years. While the average 30-year fixed mortgage rate reached a record low of 3.15% in 2021, it skyrocketed to 7.00% in 2023. The rate lingered in the 6s and 7s throughout 2024, but experts predict rates will dip into the mid-5% range in 2025.  

While the gradual drop in mortgage rates spells good news for homebuyers, it also positively affects those who plan to fund new home construction with a mortgage. Lower mortgage rates make loan-backed home construction more affordable overall. Still, rates remain higher than even the highest average rate throughout the 2010s, which was 4.86%.

This begs the question: Is now a smart time to build a home, or should you wait a bit longer in case mortgage rates drop further? While it’s impossible to say, we do know that mortgage rates are the lowest they have been in recent years. 

Economic Inflation To Finally Level Out 

Steep inflation rates have taken a toll on Americans’ wallets in the past few years. In 2022, inflation reached a hard-hitting 9.1%, one of the highest levels since 1981. This figure dropped to just 2.7% in 2024, but will this trend continue in 2025? 

Bernard Yaros Jr., a U.S. economist at Oxford Economics, thinks so. He predicts that the federal funds interest rate will linger around 2.75% by the end of 2025 and that the overall inflation rate will average 2.2% in the final quarter of the year. 

Inflation impacts everything from the cost of groceries and gas to construction materials and furniture. According to Yaros and many other economists, Americans may be able to breathe a sigh of relief as inflation rates bottom out this year. 

The Costs of Construction Materials To Increase Slightly

High interest and inflation rates in recent years diminished construction activity in 2023 and 2024, but many people are ready to dive into custom home building in 2025. JLL’s 2025 Construction Outlook predicts that construction activity will begin to pick up in late 2025. This is good news for construction companies like Schar, but how does it impact the costs of construction materials? 

The same report predicts that the costs of materials will increase by between 5% and 7% in 2025, a slight elevation beyond the anticipated inflation rate. Still, other cost cuts could offset this increase. Supply chain disruptions are not nearly as significant as they were during the pandemic, either. 

Construction Labor Shortages To Remain

Construction labor shortages have notoriously impacted home construction costs since the pandemic. Nationwide, the construction industry must hire approximately 723,000 new workers each year to meet demand, according to the National Association of Home Builders. 

Labor shortages in the construction industry remain high across the U.S. While average hourly wages in the construction industry have increased by 4.3% in the past year, the nationwide housing deficit means more workers than ever are needed to build new homes. In 2025, the industry will need to bring in approximately 454,000 new workers on top of normal hiring demands to keep up with building needs. 

While labor shortages may not significantly impact construction costs, they may impact availability and timelines. 

Remote Work To Decline Across Industries 

COVID-19 prompted a shift to remote work across virtually all industries, but 2025 is projected to see a widespread migration back to the office. How does this shift in remote work impact home construction costs? 

While remote work has reduced the expenses associated with maintaining on-site construction facilities and physical office spaces, these costs will return as more construction companies bring workers back into the office. Additionally, the higher real estate demand may bring about more job opportunities for construction companies as they renovate and build office spaces. This could impact home construction timelines. 

Other Considerations for Building a House in 2025

The above projections can certainly impact your home construction costs in 2025, but other trends and happenings may also affect your decision to build a home. 

The Competitive Housing Market

The housing market has been more competitive than ever in recent years. Homes often hit the market, receive several offers within days, and sell quickly — often with cash offers and no inspections. This trend has led many to opt for custom home building rather than trying to navigate the stressful real estate market. 

Many experts predict that home prices will slow in 2025 and the next five years. CoreLogic, a real estate data provider, predicts that house prices will grow at a modest rate of 2.5% through September 2025. This is good news for those looking to build a home, as it means less competition in the home construction space. 

Political and Policy Considerations

The U.S. is short approximately four million homes, which means builders need to build new properties faster than usual. President-elect Trump plans to address the housing shortage in 2025 and throughout his four-year presidency, such as by opening up federal land for development. However, he also has other plans that could negatively impact home construction costs, such as imposing tariffs on imports. 

While many materials used for construction are domestic, the U.S. also imports certain materials from Canada. These additional tariffs could increase the costs of materials beyond normal projections. 

The Rise in Energy-Efficient Technologies

One positive trend to consider when making home-building decisions is the continual rise in energy-efficient technologies. Developers are constantly creating more eco-friendly versions of home systems, ranging from smart thermostats and lighting to solar roof shingles. Many of these inventions could decrease energy costs in your new home; for example, the average homeowner saves $50,000 over 25 years after installing solar panels alone. 

Request a Quote for Home Construction Costs From Schar Construction 

While many factors may impact nationwide home building costs in 2025, what matters most is whether your home project will stay within budget. The best way to determine your exact costs is to request a consultation and estimate from our builders. 

Contact Schar Construction today at 541-255-1624 for an in-depth estimate of your home construction costs. 

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