An increase in temporary rate buydowns, especially in government loans, may help stimulate construction market
A combination of factors has led to challenging market conditions in the new home construction sector. And while some of those factors will continue to stifle the market, one industry analyst sees temporary rate buydowns as a possible solution to high rates.
Interest rates have remained elevated despite several forecasts predicting declines through 2025. Tariffs have raised materials costs on new home construction and have added to existing affordability challenges for homebuyers. Immigration raids are also affecting construction sites nationwide.
In the face of the challenging market, brokers are working to make new home construction more affordable. Rich Martin (pictured top), director of real estate lending solutions at Curinos, is seeing an increase in temporary rate buydowns to reduce costs.
“We track temporary buydowns, which are quite common offerings by builders and other lenders that offer construction financing,” Martin told Mortgage Professional America. “To this point, we have seen the percentage occurrence of temporary buydowns increase. With particularly government products, FHA primarily, reaching their highest levels in April 2025 since February 2024.”
Martin is hopeful that if these numbers continue to increase, that could allow the home construction numbers to increase throughout the summer, even as rates are forecasted to remain elevated.
“This could be one encouraging sign for the market if we continue to see temporary buydowns increase,” he said. “Since they serve as an offset to elevated interest rates and inflated construction costs.”
Western states with most buydowns
According to the latest numbers from Curinos, a high percentage of the overall buydowns are occurring out west. The state of Arizona has the highest percentage of buydowns by state at 13.7% of the national total. Colorado (12%), California (10.8%), Texas (7.5%) and Washington (7.2%) round out the top five.
When considering the temporary buydown share of the total production by state, Arizona tops the list at 18.3%. Colorado is second at 15.3%. Utah (10.9%), Nevada (10.3%) and Mississippi (7.7%) complete the top five.
Buydowns aren’t restricted to construction loans. Alec Conrad of Carolina Mortgage Advisors told Mortgage Professional America that a recent client was able to negotiate a buydown on a home purchase.
EMBED CODE: <blockquote class="twitter-tweet"><p lang="en" dir="ltr">Mortgage refinances are surprisingly up, with the MBA refinance index rising 16%. Mike Alberico and Alec Conrad, loan officers with Carolina Mortgage Advisors, note homeowners are re-entering the market due to changing needs and accumulated debt.<a href="https://t.co/2Qw6XO0plg">https://t.co/2Qw6XO0plg</a></p>— Mortgage Professional America Magazine (@MPAMagazineUS) <a href="https://twitter.com/MPAMagazineUS/status/1932891833811570845?ref_src=twsrc%5Etfw">June 11, 2025</a></blockquote> <script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
“A very high percentage of our purchase contracts have seller concessions on them, and sizable seller concessions,” Conrad said. “I'm not talking about $1,000. I’m talking $10,000 or more. We just had a lady relocate from Ohio to Clover, South Carolina. She's stretching her budget because she didn't sell her house before buying the new one.
“She negotiated a 2-1 buydown. We don't see that very often. But she did, and that took her from ‘There's no way she can afford it’ to ‘Okay, she can breathe’ the first two years of this mortgage payment.”
Construction market still challenging
Martin wasn’t surprised by the new home construction data released by the US Census Bureau on June 2. The data showed a 0.4% decline in total construction in April from the previous month, and a 0.7% decrease in private construction.
“In terms of 2025 year to date, we saw the largest volume levels in March and April, However, volume in May normalized back to levels similar to January,” Martin said. “In terms of geographics, since we know real estate is local, we’re seeing the largest volume density for construction in the Southeast, Southwest, and Western regions.
“This mixed trend aligns somewhat with housing permits and starts, which have shown signs of cooling due to elevated rate and overall construction costs.”
Martin believes affordability challenges are causing the slowdown, in addition to uncertainty in the global economy.
“I think elevated interest rates and construction costs are the most significant factors, as well as overall economic uncertainty around global trade and the attached tariff rhetoric,” he said. “Accessibility to capital also plays a significant part, so more lenders need to remain committed or look to expand into builder and construction financing.”
Although some optimism exists that temporary rate buydowns could help the new home construction market, Martin said things will need to change if hesitant home buyers are going to return to the market.
“Assuming minimal change to interest rates and building costs, I think you will continue to see tepid growth in construction lending for the remainder of 2025,” he said. “Any relief in zoning requirements would also be of great benefit to the marketplace.”
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