Value of residential construction

The value of residential construction is expected to reach $801.0 billion in 2025, reflecting a marginal increase of 0.8% over the prior year. Market stabilization is evident following modest growth in 2024, supported by slightly declining mortgage rates relative to the recent peak, which has incrementally improved housing affordability. Nevertheless, mortgage rates remain well above levels seen before the COVID-19 pandemic, constraining demand. Material costs and ongoing labor shortages continue to challenge project delivery and planning, placing upward pressure on construction budgets and timelines. Regional housing supply expansion, led by states with favorable construction policies like Texas and Florida, continues to mitigate some affordability issues stemming from national constraints.

Over the five years through 2025, residential construction has faced considerable volatility, with an overall contraction of 0.5%. The immediate post-pandemic period ushered in a surge in housing demand, propelled by historically low mortgage rates aligned with expansionary Federal Reserve policies and a significant increase in remote work arrangements. These trends translated into a peak in 2021, when construction value rose 10.9% to $909.4 billion. However, since 2022, market momentum was reversed as the Federal Reserve tightened monetary policy to address inflation, driving mortgage rates to more than double by 2023. Residential construction declined 8.6% in 2022 and 8.3% in 2023. The reversion of work-from-home arrangements to hybrid or office-based structures also softened demand for new housing units, particularly in urban and high-cost regions.

Persistently high input costs have further shaped industry trends. Fluctuations in prices for key materials, notably lumber and steel, along with skilled labor shortages, have placed continued pressure on budgets and construction timelines throughout the period. Regulatory factors, such as regional zoning and environmental requirements, have led to marked disparities in construction activity by geography, with states adopting pro-growth policies seeing increased activity. Demographic shifts, including the entry of Millennials into the housing market, have sustained long-term demand; however, affordability constraints have limited full realization of this potential. The combination of interest rate changes, material and labor costs, and demographic pressures explains the overall subdued performance of residential construction from 2020 to 2025.