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New and Existing Homes Remain Largely Unaffordable in Second Quarter

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While new homes remain largely unaffordable, builder efforts to improve housing affordability paid dividends in the second quarter of 2025, according to the latest data from the National Association of Home Builders (NAHB)/Wells Fargo Cost of Housing Index (CHI). The CHI results from the second quarter of 2025 show that a family earning the nation’s median income of $104,200 needed 36% of its income to cover the mortgage payment on a median-priced new home. Low-income families, defined as those earning only 50% of median income, would have to spend 71% of their earnings to pay for the same new home.

The figures are somewhat higher for the purchase of existing homes in the U.S., showing that it took more income to buy an existing home. A typical family would have to pay 37% of their income for a median-priced existing home while a low-income family would need to pay 74% of their earnings to make the same mortgage payment.

The second quarter of 2025 marked the largest historical gap where existing home prices exceeded those of new homes. Different dynamics in the two sectors are responsible for the price divergence. On one hand, builders are offering incentives for smaller homes on smaller lots, with streamlined options and features, and thus shifting their production toward less expensive homes.  Many existing homeowners, meanwhile, are locked-in their homes by low mortgage rates, limiting resale inventory, and causing existing home prices to increase.

The percentage of a family’s income needed to purchase a new home was unchanged at 36% from the first to the second quarter, while the low-income CHI fell from 72% to 71% over the same period. Median new home prices edged down 1%, from $416,900 in Q1 2025 to $410,800 in Q2 2025, while the average 30-year mortgage rate slipped from 6.91% to 6.88%.

Affordability of existing homes, on the other hand, edged lower for both median- and low-income families between the first and second quarters. Median existing home prices rose 7% during this period, from $402,300 to $429,400. The share of income needed to pay for an existing home rose from 35% to 37% for a typical family and from 70% to 74% for a low-income family during this period.

CHI is also available for 175 metropolitan areas, calculating the percentage of a family’s income needed to make the mortgage payment on an existing home based on the local median home price and median income in those markets.

In 10 out of 175 markets in the second quarter, the typical family is severely cost-burdened (must pay more than 50% of their income on a median-priced existing home). In 85 other markets, such families are cost-burdened (need to pay between 31% and 50%). There are 80 markets where the CHI is 30% of earnings or lower.

The Top 5 Severely Cost-Burdened Markets

San Jose-Sunnyvale-Santa Clara, Calif., was the most severely cost-burdened market on the CHI, where 93% of a typical family’s income is needed to make a mortgage payment on an existing home. This was followed by:

Urban Honolulu, Hawaii (73%)

San Francisco-Oakland-Fremont, Calif. (72%)

San Diego-Chula Vista-Carlsbad, Calif. (67%)

Naples-Marco Island, Fla. (60%)

Miami-Fort Lauderdale-Palm Springs, Fla. (60%)

Low-income families would have to pay between 119% and 186% of their income in all six of the above markets to cover a mortgage.

The Top 5 Least Cost-Burdened Markets

By contrast, Decatur, Ill., was the least cost-burdened markets on the CHI, where typical families needed to spend just 17% of their income to pay for a mortgage on an existing home. Rounding out the least burdened markets are:

Elmira, N.Y. (18%)

Peoria, Ill. (19%)

Davenport-Moline-Rock Island, Iowa-Ill. (19%)

Binghamton, N.Y. (19%)

Low-income families in these markets would have to pay between 33% and 38% of their income to cover the mortgage payment for a median-priced existing home.

Visit nahb.org/chi for tables and details.

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U.S. Economy Rebounded in Second Quarter

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Real GDP growth rebounded in the second quarter, driven by a turnaround in the trade balance and stronger consumer spending.

According to the “advance” estimate released by the Bureau of Economic Analysis (BEA), real gross domestic product (GDP) expanded at an annual rate of 3.0% in the second quarter of 2025, following a 0.5% contraction in the first quarter.

The latest data from the GDP report suggests that inflationary pressures are easing. The GDP price index rose 2.0% for the second quarter, down from a 3.8% increase in the first quarter of 2025. The Personal Consumption Expenditures Price (PCE) Index, which measures inflation (or deflation) across various consumer expenses and reflects changes in consumer behavior, rose 2.1% in the second quarter. This is down from a 3.7% increase in the first quarter of 2025.

This quarter’s increase in real GDP primarily reflected a decrease in imports, which are a subtraction in the calculation of GDP, and increases in consumer spending.

Consumer spending, the backbone of the U.S. economy, rose at an annual rate of 1.4% in the second quarter, up from 0.5% in the first quarter but well below the 2.8% pace recorded a year earlier. Both goods and services contributed to the gain, with goods spending rising at a 2.2% annual rate and spending on services increasing at a 1.1% annual rate.

A steep drop in imports also provided a significant boost to GDP, as imports are subtracted in GDP calculations. Imports fell 30.3% in the second quarter, a sharp reversal from the 37.9% surge in the first quarter.

Nonresidential fixed investment increased 1.9% in the second quarter. The increases in equipment (+4.8%) and intellectual property products (+6.4%) offset the decrease in structures (-10.3%). Meanwhile, residential fixed investment (RFI) declined 4.6% in the second quarter, following a 1.3% decline in the previous quarter. Within the residential category, single-family structures fell 12.6% at an annual rate, multifamily structures declined 1.3%, and improvements rose 4.2%.

For the common BEA terms and definitions, please access bea.gov/Help/Glossary.

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Weaker Demand for Residential Mortgages in Second Quarter

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In the second quarter of 2025, overall demand for residential mortgages was weaker, while lending standards for most types of residential mortgages were essentially unchanged, according to the recent release of the Senior Loan Officer Opinion Survey (SLOOS).  For commercial real estate (CRE) loans, lending standards for construction & development were modestly tighter, while demand was moderately weaker. However, for multifamily loans within the CRE category, lending conditions and demand were essentially unchanged for the third consecutive quarter. 

Last week, the Federal Reserve left its monetary policy stance (i.e., Federal Funds rate) unchanged for the fifth consecutive meeting, with Chairman Jerome Powell indicating in his statement that the Fed “is attentive to the risks to both sides of its dual mandate [maximum employment and inflation at the rate of 2%]” and the “uncertainty about the economic outlook remains elevated”.  NAHB is still forecasting two interest rate cuts before the end of 2025.

Residential Mortgages

In the second quarter of 2025, five of seven residential mortgage loan categories saw a neutral net easing index (i.e., 0) for lending conditions.  Only Qualified Mortgage (QM) non-jumbo non-GSE eligible loans experienced easing, as evidenced by a positive value (+1.8). Meanwhile, the only loans to experience tightening were non-QM non-jumbo loans at -2.0.  Nevertheless, based on the Federal Reserve classification of any reading between -5 and +5 as “essentially unchanged,” all seven categories fell within this range.

All residential mortgage loan categories reported at least modestly weaker demand in the second quarter of 2025, except for QM-jumbo which was essentially unchanged for the second consecutive quarter.  Most notably, non-QM non-jumbo (-22.0%) and subprime (-20.0%) loans experienced significantly weaker demand during the quarter.  The net percentage of banks reporting stronger demand for most of the residential mortgage loan categories has been negative for at least four years.

Commercial Real Estate (CRE) Loans

Across CRE loan categories, construction & development loans recorded a net easing index of -9.7 for the second quarter of 2025, indicating modestly tighter credit conditions.  For multifamily loans, the net easing index was -4.8, or essentially unchanged.  Both categories of CRE loans show tightening of lending conditions (i.e., net easing indexes below zero) since Q2 2022.  However, the tightening has become less defined recently for multifamily, with its net easing index essentially unchanged (i.e., between -5.0 and +5.0) for three consecutive quarters.

The net percentage of banks reporting stronger demand was -11.3% for construction & development loans and -3.2% for multifamily loans, with negative numbers indicating weakening demand.  Like the trend for lending conditions, demand for multifamily loans has experienced unchanged conditions (i.e., between -5.0% and +5.0%) for three straight quarters.

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Multifamily Developer Confidence Increases in Second Quarter

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Confidence in the market increased for multifamily developers in the second quarter of 2025, according to  the Multifamily Market Survey (MMS) released today by the National Association of Home Builders (NAHB).  The MMS produces two separate indices.  The Multifamily Production Index (MPI) was up two points year-over-year to 46.  The Multifamily Occupancy Index (MOI) had a reading of 82, up one point year-over-year.

Multifamily developer confidence experienced a slight increase compared to last year, most notably from the subsidized subcomponent.  This is due in part to optimism surrounding the expansion of federal affordable housing resources flowing from the recent congressional reconciliation bill.  However, high interest rates, rising construction costs, limited land availability and restrictive local regulations are still significant issues in certain parts of the country.  Even with these headwinds, multifamily starts are becoming less constrained as the number of apartments under construction falls and normalizes.  As a result, NAHB is forecasting starts to be modestly higher in 2025 compared to 2024, but well below levels experienced in 2023.

Multifamily Production Index (MPI)

The MMS asks multifamily developers to rate the current conditions as “good”, “fair”, or “poor” for multifamily starts in markets where they are active.  The index and all its components are scaled so that a number above 50 indicates that more respondents report conditions as good rather than poor. The MPI is a weighted average of four key market segments: three in the built-for-rent market (garden/low-rise, mid/high-rise, and subsidized) and the built-for-sale (or condominium) market.

Two components experienced year-over-year increases: the component measuring subsidized units jumped 10 points to 61 and the components measuring mid/high-rise rose seven points to 36.   The component measuring garden/low-rise and built-to-sale units both fell three points year-over-year to 50 and 35, respectively.

Multifamily Occupancy Index (MOI)

The survey also asks multifamily property owners to rate the current conditions for occupancy of existing rental apartments, in markets where they are active, as “good”, “fair”, or “poor”.  Like the MPI, the MOI and all its components are scaled so that a number above 50 indicates more respondents report that occupancy is good than report it as poor.  The MOI is a weighted average of three built-for-rent market segments (garden/low-rise, mid/high-rise and subsidized). 

Two of the three MOI components experienced year-over-year increases in the second quarter of 2025.  The component measuring subsidized units rose by five points to 90 and the garden/low-rise component increased two points to 84.  Meanwhile, the component measuring mid/high-rise units fell three points to 73.  Nevertheless, all three MOI components remain well above the break-even point of 50.

The MMS was re-designed in 2023 to produce results that are easier to interpret and consistent with the proven format of other NAHB industry sentiment surveys.  Until there is enough data to seasonally adjust the series, changes in the MMS indices should only be evaluated on a year-over-year basis.

Please visit NAHB’s MMS web page for the full report.

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Student Housing Construction Rises in the Second Quarter of 2025

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Private fixed investment in student dormitories inched up 0.3% in the second quarter of 2025, reaching a seasonally adjusted annual rate (SAAR) of $3.9 billion. This gain followed a 1.1% decrease in the previous quarter, as elevated interest rates placed a damper on student housing construction. Moreover, private fixed investment in dorms was 2.1% higher than a year ago 

Private fixed investment in student housing experienced a surge after the Great Recession, as college enrollment increased from 17.2 million in 2006 to 20.4 million in 2011. However, during the pandemic, private fixed investment in student housing declined drastically from $4.4 billion (SAAR) in the last quarter of 2019 to a lower annual pace of $3 billion in the second quarter of 2021, as COVID-19 interrupted normal on-campus learning. According to the National Student Clearinghouse Research Center, college enrollment fell by 3.6% in the fall of 2020 and by 3.1% in the fall of 2021.  

Since then, private fixed investment in dorms has rebounded, as college enrollments show a gradual recovery from pandemic driven declines. Effective in-person learning requires college students to return to campuses, boosting the student housing sector.  Still, demographic trends are reshaping the outlook for student housing. The U.S. faces slower growth in the college-age population as birth rates declined following the Great Recession. As a result, total enrollment in postsecondary institutions is projected to only increase 8% from 2020 to 2030, according to the National Center for Education Statistics, well below the 37% increase between 2000 and 2010. 

Despite recent fluctuations, the student housing construction shows signs of recovery and future growth is expected in response to increasing student enrollment projections. 

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Housing Share of GDP: Second Quarter 2025

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Housing’s share of the economy registered 16.3% in the second quarter of 2025, according to the advance estimate of GDP produced by the Bureau of Economic Analysis. This reading is unchanged from a revised level of 16.3% in the first quarter and is the same as the share one year ago.

The more cyclical home building and remodeling component – residential fixed investment (RFI) – was 4.0% of GDP, level from 4.0% in the previous quarter. The second component – housing services – was 12.3% of GDP, also unchanged from the previous quarter. The graph below plots the nominal shares for housing services and RFI along with housing’s total share of GDP.  

Housing service growth is much less volatile when compared to RFI due to the cyclical nature of RFI. Historically, RFI has averaged roughly 5% of GDP, while housing services have averaged between 12% and 13%, for a combined 17% to 18% of GDP. These shares tend to vary over the business cycle. However, the housing share of GDP lagged during the post-Great Recession period due to underbuilding, particularly for the single-family sector.

In the second quarter, RFI subtracted 19 basis points to the headline GDP growth rate, marking the second straight quarter of negative contributions. RFI was 4.0% of the economy, recording a $1.2 trillion seasonally adjusted annual pace. Among the two segments of RFI, private investment in structures shrunk 4.5%, while residential equipment fell 7.9%.

Breaking down the components of residential structures, single-family RFI fell 12.9%, while multifamily RFI fell 1.3%. RFI for multifamily structures has contracted for eight consecutive quarters. Permanent site structure RFI, which is made up of single-family and multifamily RFI, fell 10.2%. The other structures RFI category rose 0.6% in the second quarter.

The second impact of housing on GDP is the measure of housing services. Similar to the RFI, housing services consumption can be broken out into two components. The first component, housing, includes gross rents paid by renters, owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units), rental value of farm dwellings, and group housing. The inclusion of owners’ imputed rent is necessary from a national income accounting approach, because without this measure, increases in homeownership would result in declines in GDP. The second component, household utilities, is composed of consumption expenditures on water supply, sanitation, electricity, and gas.

For the second quarter, housing services represented 12.3% of the economy or $3.7 trillion on a seasonally adjusted annual basis. Housing services expenditures fell 0.2% at an annual rate in the second quarter. Real personal consumption expenditures for housing grew 1.2%, while household utilities expenditures fell 9.2%.

Personal consumption expenditures (PCE) for housing services are the largest component of PCE, making up 18.1% in the second quarter. The second largest component of PCE is health care services, at 17.0%. Expenditures on services totaled $14.2 trillion on a seasonally adjusted annual basis in the second quarter, more than double expenditures on goods ($6.4 trillion).

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Remodeling Market Sentiment Dips in Second Quarter

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In the second quarter of 2025, the NAHB/Westlake Royal Remodeling Market Index (RMI) posted a reading of 59, down four points compared to the previous quarter. While this reading is still in positive territory, some remodelers, especially in the West, are seeing a slowing of activity in their markets. The second-quarter reading of 59 marks only the second time the RMI has dipped below 60 since the survey was revised in the first quarter of 2020.

Higher interest rates and general economic uncertainty have affected consumer confidence and are headwinds for remodeling, but not to the extent that they have been for single-family construction, as is evident in June’s negative reading from the NAHB/Wells Fargo Housing Marketing Index (HMI).  As a result, NAHB is still forecasting solid gains for remodeling spending in 2025, followed by more modest, but still positive, growth in 2026. 

The RMI is based on a survey that asks remodelers to rate various aspects of the residential remodeling market “good”, “fair” or “poor.”  Responses from each question are converted to an index that lies on a scale from 0 to 100. An index number above 50 indicates a higher proportion of respondents view conditions as good rather than poor.

Current Conditions

The Remodeling Market Index (RMI) is an average of two major component indices: the Current Conditions Index and the Future Indicators Index. 

The Current Conditions Index is an average of three subcomponents: the current market for large remodeling projects ($50,000 or more), moderately sized projects ($20,000 to $49,999), and small projects (under $20,000).  In the second quarter of 2025, the Current Conditions Index averaged 66, down five points from the previous quarter.  All three components decreased quarter-over-quarter, with both small and moderately-sized remodeling projects falling six points to 70 and 66, respectively, while large remodeling projects slipped two points to 62.  Nevertheless, all three components remained above 50 in positive territory.

Future Indicators

The Future Indicators Index is an average of two subcomponents: the current rate at which leads and inquiries are coming in, and the current backlog of remodeling projects. 

In the second quarter of 2025, the Future Indicators Index averaged 51, decreasing four points from the previous quarter. While the component measuring the current rate at which leads and inquiries are coming in remained unchanged at 51, the component measuring the backlog of remodeling jobs fell six points to 52.  Similar to the Current Conditions components, both remain above 50 in positive territory.

For the full set of RMI tables, including regional indices and a complete history for each RMI component, please visit NAHB’s RMI web page.

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2025 First Quarter State-Level GDP Data

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Real gross domestic product (GDP) increased in ten states in the first quarter of 2025 compared to the last quarter of 2024, according to the U.S. Bureau of Economic Analysis (BEA). Thirty-nine states reported real GDP declines, while the District of Columbia and Delaware reported no change during this time. The percent change in real GDP ranged from a 1.7 percent increase at an annual rate in South Carolina to a 6.1 percent decline in Iowa and Nebraska.

Nationwide, growth in real GDP (measured on a seasonally adjusted annual rate basis) declined 0.5 percent in the first quarter of 2025. This is the first decline in quarterly real GDP levels in three years. The leading contributors to the decrease in real GDP across the country were finance and insurance; agriculture, forestry, fishing and hunting; and wholesale trade.

Regionally, real GDP growth declined in seven out of the eight regions between the last quarter of 2024 and the first quarter of 2025. The Southeast region was the only territory to post a meager 0.3 percent increase. The percent change in real GDP declines ranged from a 0.3 percent decline in the Southwest and Far West regions, to a 3.3 percent decline in the Plains region.

At the state level, South Carolina posted the highest GDP growth rate (1.7 percent), followed by Florida (1.4 percent) and Alabama (1.0 percent). The percent increase in real GDP ranged from a 1.7 percent increase in South Carolina to a 0.1 percent increase in Georgia. On the other hand, 39 states reported real GDP declines ranging from a 0.1 percent decline in New Hampshire, Ohio, and Texas, to a 6.1 percent decline in Iowa and Nebraska for the first quarter of 2025.

Looking at industry contributions to GDP across states, the “real estate and rental and leasing industry” was the leading contributor to growth in all 50 states and the District of Columbia. In contrast, the agriculture, forestry, fishing, and hunting industry led a decrease in 39 states, and was the leading contributor to economic contraction in 11 states.

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State and Local Property Tax Revenue Grows in the First Quarter

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In the first quarter of 2025, state and local governments experienced an increase in property tax revenue growth. On a seasonally adjusted basis, state and local government property tax revenue grew 1.1% over the quarter, according to the Census Bureau’s quarterly summary of state and local tax revenue. Meanwhile, total tax revenue for state and local governments grew 1.3% over the quarter, with corporate income tax revenue up 6.6%, sales tax revenue up 0.9% and individual income tax revenue up 0.2%.

Property tax revenue stood at $203.4 billion in the first quarter, a slight increase from $201.1 billion in the fourth quarter. While this does show growth over the quarter, growth has notably slowed over the past year. The quarterly growth in the first quarter of 2024 was almost double (2.1%) the current rate. On a year-over-year basis, property tax revenue was 5.2% higher, up from $193.3 billion.

Property taxes typically make up the largest share of the total tax revenue for state and local governments, accounting for over one-third at 37.8% in the first quarter. The second highest revenue source was sales tax at 27.7%, totaling $148.9 billion, followed closely by individual income tax at 26.1% ($140.5 billion). Corporate income tax rounded out the remaining 8.4% at $45.4 billion.

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House Price Appreciation by State and Metro Area: First Quarter 2025

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House price growth slowed in the first quarter of 2025, partly due to a decline in demand and an increase in supply. Persistent high mortgage rates and increased inventory combined to ease upward pressure on house prices. These factors signaled a cooling market, following rapid gains seen in previous years.

Nationally, according to the quarterly all-transactions House Price Index (HPI) released by the Federal Housing Finance Agency (FHFA), U.S. house prices rose 4.7% in the first quarter of 2025, compared to the first quarter of 2024. This year-over-year (YoY) rate was lower than the previous quarter’s rate of 5.5%. The FHFA’s all-transactions HPI tracks average price changes based on repeat sales and refinancings of the same single-family properties. It offers insights not only at the national level but also across states and metropolitan areas.

Between the first quarter of 2024 and the first quarter of 2025, all 50 states and the District of Columbia experienced positive house price appreciation, ranging from 1.0% to 8.4%. Connecticut and Rhode Island topped the house price appreciation list with an 8.4% gain each, followed by New Jersey with a 7.8% gain. On the opposite end, Louisiana recorded the lowest house price appreciation at 1.0%. Out of all 50 states and the District of Columbia, 26 states exceeded the national YoY growth rate of 4.7%. However, on a quarterly basis, home price appreciation slowed in 39 states compared to the fourth quarter of 2024, highlighting a broad-based deceleration in the housing market.

House price growth widely varied across U.S. metro areas year-over-year, ranging from -7.0% to +23.0%. Rome, GA recorded the largest decline in house prices, whereas Johnstown, PA posted the highest increase over the previous four quarters. In the first quarter of 2025, 28 metro areas, in reddish color on the map above, experienced negative house price appreciation. Meanwhile, 356 metro areas experienced price increases.

Since the onset of the COVID-19 pandemic, house prices have surged nationally. Between the first quarter of 2020 and the first quarter of 2025, house prices rose by 54.9% nationwide. More than half of metro areas outpaced this national price growth rate of 54.9%.

The table below highlights the top ten and bottom ten markets for house price appreciation during this five-year period. Among all the metro areas, house price appreciation ranged from 16.7% to 90.1%. Hinesville, GA led the nation with the highest house price appreciation. Lake Charles, LA recorded the lowest appreciation, marking its fourth consecutive quarter at the bottom.

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