Luxury Homes Hold Steady While the Broader Market Slows

# What the data shows Luxury and custom residential building gained ground in 2025 even as higher interest rates and affordability problems weighed on the broader housing market. National Association of Home Builders (NAHB) data points to more starts of very large homes and a growing price gap between custom and spec construction.

# The numbers that matter

• These large homes are high-end in their features: 86% include a porch, 73% a finished basement, 73% have at least four bathrooms, 66% include garages for three or more vehicles, and 57% have at least five bedrooms.

• For single-family custom homes started in 2025, the median contract price was $171 per square foot. Comparable spec-home median was $152 per square foot, a 12.6% custom-home premium—the largest premium since 2011 and above the roughly 9% two-decade average.

# Why luxury is moving differently Affluent buyers face different constraints than price-sensitive buyers. Custom builders have stayed relatively steady through early 2026, while spec construction contracted. Financing patterns amplify that difference: cash purchases are common at the top end. In the first half of 2025, more than 40% of homes sold above $1 million were bought with cash, and cash accounted for most purchases above $2 million. That reduces sensitivity to rising mortgage rates for these buyers.

# Broader market context Reserve raised the federal funds rate to a 3.75%–4% target range in September in response to persistent inflation. While the fed funds rate doesn't directly set mortgage rates, it raises acquisition, development and construction financing costs for builders. Those higher financing costs layer on preexisting challenges: elevated land prices, construction input costs and regulatory burdens.

The NAHB noted positive economic signals as well. The Federal Open Market Committee described economic activity as expanding at a solid pace and slightly upgraded its growth projections. NAHB forecasts real GDP growth of 2.1% in 2026 and 2.4% in 2027.

# Practical takeaways for market participants

• Builders and developers: product mix matters. Demand is diverging by price point—custom and luxury builds remain viable for buyers who can pay cash or absorb higher financing costs.

• Investors: luxury segments can offer resilience when broader demand is price-sensitive, but construction and financing cost pressures still affect margins.

• Agents and sellers: understanding whether a property competes in the luxury/custom niche or the price-sensitive mass market is increasingly important when setting strategy and pricing.

# Bottom line The housing market is moving at two speeds. Elevated borrowing costs and affordability constraints continue to slow much of the market, but high-end buyers who can pay cash or choose custom builds are still active and paying premiums for size and features.