Homebuilders will likely construct fewer houses while reducing their size to combat cost challenges squeezing buyer demand in 2025, according to a major supplier of building materials and services.
In the fourth quarter, builders nationally purchased fewer materials for single-family homes, according to Builders FirstSource, resulting from a pullback in construction and a move toward smaller projects. CEO Peter Jackson on the company’s earnings call Feb. 20 chalked up the situation to the continued “battle that’s going on with affordability.”
Builders FirstSource is one of the largest providers of lumber, manufactured components, wall panels, stairs, windows, trim and other products needed for new construction, repairs and remodeling.
“We’re all engaged in it and trying to make sure that we find ways to deliver homes people can actually acquire, and it’s been a bit of a rocky road,” said Jackson. “Interest rates haven’t helped. Builders have been sort of modulating their build pace in order to maintain inventories at a reasonable level.”
Pressure on single-family construction will likely further these trends throughout the year, according to Builders FirstSource. The company predicted little increase in single-family starts in 2025. Economists generally recommend building more housing as a way to bring down costs.
Construction starts were 9.8% lower last month compared to a year prior, according to the recent Census Bureau Survey of Construction released Feb. 19, and Jackson noted that the single-family new construction industry is set to maintain a steadily “below normal” housing start rate.
Homebuilders are pulling back starts in specific markets to balance inventory and buyer demand rather than making sweeping decisions to construct fewer homes, noted Jackson. This, in addition to mortgage rate buydowns, has become a more common choice for builders facing softer demand from homebuyers due to high interest rates and rising home prices. Mortgage rates fell to 6.85% for a 30-year, fixed-rate mortgage on Thursday, a fifth consecutive weekly decrease.
“In general, I would say builders are behaving consistently; they continue to buydown pretty aggressively as their key lever for keeping the production moving,” said Jackson. “Consistent, but the pullback on starts is probably the last maybe four to six months, certainly a much bigger part of the conversation than it had been in the prior periods.”
National homebuilder Toll Brothers said on its earnings call Wednesday that it would hold off on starts for specific markets and reduce overall speculative homes in the near term.
The potential tariffs on Canada and Mexico, countries that are high exporters of building materials, could pull back construction further, though the overall impact remains unclear. The same goes for immigration policies, which could negatively impact construction labor and in turn, affordability, noted Jackson.
Building smaller
Homebuilders constructed smaller homes in the fourth quarter and have been doing so generally as a response to cost constraints, according to Builders FirstSource. Homes in 2025 may not shrink further but instead will likely remain at a more compact size, the firm said.
The Census Bureau's Survey of Construction for completed new homes found the median square footage of a new home in 2024 was 2,153 square feet, continuing a steady decline from 2021's median square footage of 2,303.
“Regarding the average home size, we’re seeing that start to level out. It’s still a downward pressure, consistent with what the public builders have communicated. They’re seeing a mix toward a smaller home, but it’s more modest than it has been over the past year,” Chief Financial Officer Pete Beckmann said on the call.
Designers of production homes reported to be four times more likely to plan for smaller homes last year, according to a July survey conducted by John Burns Research and Consulting’s New Home Trends Institute. The survey also found a quarter of designers downsized homes to cut costs.
As part of its fourth-quarter earnings report, Builders FirstSource posted a 10.5% decrease in gross profit in 2024 and a 4.1% decrease in net sales.