US Property & Development Finance Market

20th February 2025

The US property and development finance market has faced significant shifts this week, driven by rising mortgage rates, housing affordability concerns, construction cost increases, and regulatory changes. These factors are influencing investment strategies, lending conditions, and property development activity across the country.

This report provides a detailed analysis of the most important trends impacting the US real estate sector, focusing on:

• The slowdown in housing starts due to severe weather conditions.
• Rising mortgage rates and their impact on affordability.
• The continued strength of the luxury property market, driven by cash buyers.
• Regulatory changes, including the potential privatization of Fannie Mae and Freddie Mac.
• Rising construction costs due to new tariffs and supply chain disruptions.

By understanding these key market movements, investors and developers can make informed decisions and adjust their strategies in response to evolving financial conditions.

Key Market Movements

Housing Starts Decline Due to Severe Weather

Severe weather has significantly impacted the US housing market, leading to a sharp decline in new housing starts.

• Single-family housing starts fell by 8.4 percent in January 2025, dropping to 993,000 units—the lowest level in over a year.
• Northeast and Midwest regions were hit hardest by snowstorms and freezing temperatures, causing widespread construction delays.
• West Coast construction saw a 24.9 percent increase, as builders took advantage of milder weather despite ongoing wildfire risks.

The slowdown in new home construction is likely to tighten housing inventory, pushing home prices higher in high-demand regions. Multifamily housing starts also declined by 3.6 percent, though rental demand remains strong, particularly in urban markets where rent prices are expected to outpace inflation.

Key takeaway:

Weather-related delays and material shortages are reducing new housing supply, which could drive up property values in key regions.

Mortgage Rates Continue to Rise

Mortgage rates have continued their steady upward trend, further straining affordability for homebuyers.

• The 30-year fixed mortgage rate rose to 6.9 percent, up from 6.83 percent last week.
• The 15-year fixed mortgage rate increased to 5.98 percent, making short-term financing more expensive.
• Some buyers are turning to adjustable-rate mortgages (ARMs) for lower initial rates, though these come with long-term risks.

Lenders are responding to affordability concerns by offering rate buydowns, longer mortgage terms, and flexible lending options. However, first-time buyers are still struggling, with many delaying home purchases due to high borrowing costs and elevated property prices.

Key takeaway:

Rising mortgage rates are pricing out many homebuyers, while lenders attempt to soften the impact with new financing options.

Luxury Property Market Remains Resilient

While mid-range home sales are slowing due to higher mortgage rates, the luxury property sector continues to thrive, largely fueled by cash buyers and foreign investors.

• Houston luxury home sales rose by 21 percent year-over-year, with many transactions being cash purchases.
• New York and Miami remain hotspots for high-net-worth investors, with prime real estate continuing to attract capital.
• Foreign investors, particularly from Asia and the Middle East, are actively purchasing high-end US real estate as a wealth preservation strategy.

Unlike the broader housing market, luxury real estate remains insulated from rising interest rates, as cash transactions dominate this segment.

Key takeaway:

The luxury real estate market continues to perform well, driven by high-net-worth individuals seeking inflation-resistant assets.

Regulatory Updates: Fannie Mae and Freddie Mac Privatization

The US Department of Housing and Urban Development (HUD) has moved forward with plans to privatize Fannie Mae and Freddie Mac, reducing government involvement in mortgage lending.

• The proposed changes could tighten mortgage lending standards, particularly for low-income and first-time buyers who rely on federally backed loans.
• Financial institutions would gain greater control over mortgage lending, potentially leading to:
  • Higher borrowing costs for riskier borrowers.
  • Stricter loan eligibility criteria, making homeownership more challenging for some buyers.

Housing analysts are closely monitoring these developments, as privatization could reshape mortgage accessibility and shift risk exposure from the government to private lenders.

Key takeaway:

If implemented, privatization could make mortgage financing more difficult to obtain for low-income borrowers, altering homeownership dynamics in the US.

Rising Construction Costs and Trade Policy Impacts

Developers are facing rising material costs, driven by tariffs on key construction supplies.

• New tariffs on imported steel, aluminium, and other building materials are increasing the cost of large-scale developments.
• Supply chain disruptions are delaying construction projects, leading to higher costs and extended completion timelines.

To combat rising expenses, some developers are turning to cost-saving strategies, such as:

• Modular construction techniques to reduce material waste and cut costs.
• Alternative financing sources to offset the impact of higher borrowing rates.

Without a shift in trade policy or supply chain improvements, construction cost inflation will remain a key challenge throughout 2025.

Key takeaway:

Rising construction costs are limiting new housing supply, pushing developers toward alternative building methods and financing strategies.

Implications for Property Developers and Investors

For Property Developers:

• Budget flexibility is essential due to rising material costs.
• Alternative financing strategies may be needed if Fannie Mae and Freddie Mac privatization limits access to loans.
• Developers must prepare for construction delays caused by climate disruptions and supply chain issues.

For Investors and High-Net-Worth Individuals:

• Luxury real estate remains a strong asset class, particularly for cash buyers.
• Rising mortgage rates may reduce homebuyer demand, increasing rental market opportunities.
• Alternative financing, such as adjustable-rate mortgages (ARMs) and private credit, is becoming more attractive in the current interest rate environment.

Key takeaway:

Investors and developers must adapt to changing financing conditions and construction challenges to stay competitive.

Conclusion and Future Outlook

The US property and development finance market continues to evolve, with mortgage rate increases, regulatory changes, and rising construction costs playing a major role in shaping investment decisions.

What to Watch in the Coming Weeks:

• Potential Federal Reserve rate cuts later in 2025.
• Updates on the Fannie Mae and Freddie Mac privatization process.
• Further tariff adjustments impacting construction material costs.
• Housing supply trends and rental market performance.

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