A Slight Rise in Single-Family Starts as Economic Uncertainty Persists

Single-family housing production should register a slight uptick in 2025 as builders contend with conflicting market conditions – policy moves expected to aid the business climate in the areas of regulatory reform and extension of the 2017 tax cuts coupled with tariff and immigration actions that could have an adverse impact on housing costs and supply.

And while economists speaking at the International Builders’ Show in Las Vegas today cited those economic factors, other developments such as stubbornly high shelter inflation that accounts for more than half of the increase in the overall Consumer Price Index, and tight lending conditions for construction and development loans, will continue to weigh heavily on the housing market in 2025.

“Home builders and remodelers are dealing with positive and negative risks in the months ahead,” said Rob Dietz, chief economist of the National Association of Home Builders (NAHB). “With shelter inflation still rising at a 4.4% annual clip and a housing shortage of roughly 1.5 million units, the best way to bend the rising housing cost curve is for the Trump administration and Congress to enact policies that will allow builders to construct more attainable, affordable housing.”

NAHB’s 10-point housing plan addresses these issues, including the need to eliminate excessive regulations, promote careers in the skilled trades and fix building material supply chains, among other issues. With the Federal Reserve mulling future risks to both inflation and unemployment, NAHB forecasts that mortgage rates will unevenly trend toward 6% by the end of next year but the process won’t be smooth, with rates anticipated to move sideways or even lurch higher at times over the next year if the nation experiences larger fiscal deficits.

The Forecast

As positive (regulatory reform and tax cuts) and negative (tariffs and immigration) policy scenarios rise, single-family starts are set to inch up 0.2% this year to an annual rate of 1.01 million units and rise an additional 4% in 2026 to a 1.05 million pace.

On the multifamily front, construction should stabilize later this year as lower short-term interest rates improve the financing outlook for apartment development. NAHB is forecasting an 11% decline in multifamily output this year to a 317,000 annual pace with multifamily starts rising 6% next year to 336,000 units.

Meanwhile, with an aging housing stock and record levels of home equity, there are positive growth prospects for remodeling. NAHB anticipates residential remodeling will expand 5% in 2025 and an additional 3% in 2026.

The Value of Homeownership

In a sign of how much value Americans place on homeownership, a Zonda survey showed that 20% of respondents were willing to pay up to $500 more monthly for a mortgage than their current rent and more than 10% of those surveyed would pay up to $1,000 more for a mortgage than their present rent. Moreover, another 10%-plus of those surveyed said they would be willing to pay more than $1,000 above their current rent to own a home. However, current market conditions are locking such potential home buyers in place, including high interest rates and greater opportunities for affordable deals at rental communities.

“This survey data really illustrates the strong desire Americans place on owning a home of their own,” said Zonda Chief Economist Ali Wolf. To hammer home this point, Wolf noted a government statistic that shows the net worth of home owner households is $396,200 vs. $10,400 for renters – a nearly 40-fold spread.

In a further sign of pent-up demand for homeownership, Wolf cited a Zonda survey that shows 31% of respondents expect to buy a home in the next three to five years, up from 17% in 2022 and 2023.

In terms of what to watch for in 2025, Wolf also noted tailwinds and headwinds facing the industry. Wolf stated that the administration’s focus on pro-growth policies and less regulation would be good for housing and the wider economy but tariffs and immigration disproportionately impact the housing sector in the form of higher construction and labor costs.

A More Balanced Market

In terms of supply and demand, the housing market is gradually shifting to a more neutral stance. With a buyer’s market defined as a greater than six-month supply of housing and seller’s market as less than a four-month supply, the market has slowly edged up from a 2.3-month supply in 2021 to a projected 4.1-month level this year.

“Inventory is recovering faster than sales, and this is leading to a more balanced market,” said Danielle Hale, chief economist at Realtor.com. “Inventory growth is being fueled by newly listed homes, which were up 10.8% year over year in January 2025.

On the mortgage front, Hale noted that 83% of outstanding mortgages have a sub-6% rate and 55% are below 4%. By the end of 2025, she said 75% of outstanding mortgages are projected to be below 6%.

“The mortgage rate lock-in effect is gradually fading but affordability remains a challenge for home buyers,” said Hale.

And because of the mortgage lock-in effect, where buyers with low mortgage rates have been reluctant to put their homes on the market and take on prevailing rates averaging near 7%, new home sales have remained above trend. New home sales represented 14.5% of the market in 2024, the highest percentage since 2005. New home sales historically have averaged 10-12% of all home sales.

“New home sales are expected to outperform again in 2025 but competition will be growing from existing sellers,” said Hale.