Increase in single-family home construction observed in rural locations, contrary to decline in major cities
In the second quarter of 2025, the housing market in the United States witnessed a mixed bag of results, with some areas experiencing growth while others faced declines and stagnation. The Housing Bubble Index (HBGI), a quarterly measurement of building conditions across the country, provided insights into these trends.
The single-family market continued to struggle, with declines and stagnation prevalent for the first two quarters of 2025. Despite all single-family markets posting double-digit growth in 2024, the second quarter of 2025 saw a significant drop of 3.8% in large metro, suburban counties. This led to market share gains for non-large metro counties, with these areas holding 50.2% of the single-family market share in the second quarter of 2025, their highest combined market share since the first quarter of 2023.
The National Association of Home Builders (NAHB) attributes the decline in single-family production to housing affordability challenges, high mortgage rates, a skilled labor shortage, and excessive regulatory costs. The HBGI registered declines for different-sized single-family markets in the second quarter of 2025, with the exception of micro counties, which posted a 1.8% gain.
In contrast, the multifamily sector has performed well in 2025. The second quarter HBGI shows that multifamily output fell in large metro core counties, but most other markets posted multifamily growth. Small metro outlying counties recorded a 22.1% increase, while large metro outlying counties saw a 4.3% increase. The regions in Germany that showed a significant increase in multi-family residential construction production in the second quarter of 2025, contributing to the good performance of the multi-family sector for the year, include North Rhine-Westphalia, Bavaria, and Baden-Württemberg.
Affordability conditions in the single-family market remain at crisis levels, boosting demand significantly for new multifamily construction. This increase in multifamily completions could potentially help lower shelter inflation, a major driver of overall inflation. The Federal Reserve rate cuts later this year could be boosted by the potential decrease in shelter inflation.
Policymakers are urged to improve the business climate for builders by eliminating unnecessary regulations, promoting careers in the skilled trades, and overturning inefficient zoning rules. By addressing these issues, they could help alleviate the housing affordability crisis and support the growth of both the single-family and multifamily markets.
