🏠 Why U.S. Home Prices Aren’t Falling in 2025—Despite Rising Inventory

As of mid-2025, many prospective homebuyers are puzzled: with a noticeable increase in housing inventory, why aren’t home prices dropping significantly? While the seller-to-buyer ratio offers a snapshot of market sentiment, it doesn’t capture the full complexity of the housing market ¹. Let’s explore the underlying factors keeping prices elevated.

📊 The Seller-to-Buyer Ratio: A Limited Indicator

The seller-to-buyer ratio provides a general sense of market balance. A higher ratio suggests a buyer’s market, while a lower ratio indicates a seller’s market. However, this metric doesn’t account for crucial elements like:

Price Sensitivity: An abundance of buyers doesn’t guarantee sales if homes are overpriced.
Property Types: Demand varies across different housing segments; for instance, entry-level homes may see more interest than luxury properties.
Construction Costs: Rising costs can deter new developments, affecting supply.

Therefore, while informative, the seller-to-buyer ratio shouldn’t be the sole measure of market health.

🧱 Construction Costs: A Major Contributor

Construction expenses have surged, making it costlier to build new homes. In 2024, construction costs accounted for approximately 64.4% of a single-family home’s price—the highest since the 1990s. The average construction cost reached $428,215, or $162 per square foot ². Factors driving these costs include ³:

Material Prices: Tariffs and supply chain disruptions have increased prices for essential materials like steel and aluminum .
Labor Shortages: The industry faces a deficit of skilled workers, leading to higher wages and project delays ⁴ ⁵.

These rising costs discourage new construction, limiting housing supply and sustaining high prices ⁶.

🏗️ Supply Constraints Amid Rising Demand

Despite a slowdown in construction, demand for housing remains robust. In April 2025, U.S. construction spending fell by 0.4%, with residential construction dropping by 0.9% . High borrowing costs and an oversupply of unsold homes have contributed to this decline ⁷. However, the existing housing inventory is still below historical averages, and new home listings have surged to the highest level in five years, offering buyers more options ⁸.

💸 Mortgage Rates and Affordability

Mortgage rates have remained elevated, averaging 6.89% for a 30-year fixed-rate loan ⁹. These higher rates have strained affordability, particularly for first-time buyers. While some regions have seen slight price declines, overall home prices have continued to rise, albeit at a slower pace. In March 2025, the S&P CoreLogic Case-Shiller national home price index reported a 0.3% drop from February, but prices were still 3.4% higher than a year ago ¹⁰.

🏘️ Regional Variations and Market Outlook

Real estate markets vary significantly across regions ¹¹. For example:

Sun Belt States: Areas like Texas, Florida, and Arizona are experiencing strong housing activity due to robust construction and offerings for first-time buyers .
Northeast: Supply constraints and high land costs have limited new construction, keeping prices elevated.

Looking ahead, J.P. Morgan Research anticipates a modest 3% increase in home prices for 2025, with mortgage rates expected to ease slightly to 6.7% by year-end ¹².

🧠 Conclusion

While the seller-to-buyer ratio provides a glimpse into market dynamics, it’s insufficient to fully understand the complexities of the housing market. Rising construction costs, supply constraints, and high mortgage rates are significant factors keeping home prices from falling. As these challenges persist, it’s crucial for buyers, sellers, and policymakers to consider a broader range of indicators when assessing market conditions.