Homebuilders group expects slight uptick in single-family housing starts

Las Vegas — Single-family housing starts are expected to remain essentially flat in 2025 as concerns about shelter inflation, immigration enforcement and tariffs temper any benefits from federal policy moves related to regulatory reforms and extended tax cuts.

The National Association of Home Builders (NAHB) forecasts the slightest of upticks — just 0.2 percent — to 1.01 million single-family starts this year followed by a 4 percent increase to 1.05 million units in 2026.

"I think it's going to just edge up a little bit because there's still a lot of buyer demand, but it's going to be tough for some of them to pull the trigger," NAHB Chief Economist Robert Dietz said. "They have to feel certain and one thing we don't have right now is certainty about just about anything."

Dietz spoke with two other economists about the 2025 housing outlook on Feb. 26, which was the opening day of NAHB's main event, the International Builders' Show at the Las Vegas Convention Center.

For multi-family housing, NAHB expects construction to stabilize later this year as lower short-term interest rates improve the financing outlook for apartment development. The trade group forecast an 11 percent decline to a 317,000 annual pace this year with multi-family starts going up 6 percent next year to 336,000 units.

As for remodeling, NAHB says an aging housing stock coupled with record levels of home equity point to positive growth prospects. The group is calling for residential remodeling to expand 5 percent in 2025 and then another 3 percent in 2026.

Back to single-family housing, changing market conditions and possible federal actions are raising a lot of questions.

"What's the future of illegal immigration enforcement? What impact is it going to have on housing demand and on labor supply for the industry?" Deitz asked. "Then I added this last [issue] just this week: international affairs. You know the divorce between the U.S. and Europe. That obviously has military and foreign affairs impacts but it has financial impacts as well. U.S. and European banks buy treasury bonds. If those European banks decide not to buy those bonds, interest rates can go up in the United States."

Another economic unknown is tariffs. About 7.3 percent of building materials are imported, including 34 percent of appliances, NAHB says, citing the U.S. Census Bureau. Residential building material imports totaled $11.2 billion in 2024 with 22.6 percent of materials coming from China, 13.4 percent from Mexico and 8.7 percent from Canada.

"Tariffs will raise building material prices and if you look at the sources, a little bit more than 20 percent are from China. We already have a 10 percent tariff rate on those materials. That rate will undoubtedly go higher later this year. So, if you're looking at building materials from China expect those costs to go up."

Canada and Mexico combined represent another 20 percent of imports that are facing tariffs.

"I'm concerned about building material costs. Canadian lumber right now has a 14½ percent duty rate, which was set by the Commerce Department," Dietz said. "That rate is likely to go near 30 percent at the end of the summer just due to a bureaucratic action."

Then, there's the political changes related to the election of U.S. President Donald Trump.

"We've now got a unified government, and history tends to tell us when you have one political party in control of the Congress and the presidency, the deficit tends to be larger. So, there are concerns about a rise in deficit and the impact we think that will have on mortgage interest rates," Dietz said.

NAHB says regulatory costs have been adding to home prices, too, and now total about $93,870 per new home, which was an 11 percent gain from 2016 to 2021.

The trade group is pushing a 10-point plan to eliminate some regulations, overturn inefficient local zoning rules, alleviate permitting roadblocks, and adopt reasonable building codes.

Home builders and remodelers are dealing with positive and negative risks in the months ahead.

"With shelter inflation still rising at a 4.4 percent 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," Dietz said.

New construction typically makes up 10-12 percent of all home sales, but in 2024 the average reached 14.5 percent, which was the highest percentage since 2005.

Existing homes have been dogged by the mortgage lock-in effect, where buyers with low mortgage rates have been reluctant to put their homes on the market and take on rates near 7 percent. However, it appears to be easing.

"New home sales are expected to outperform again in 2025 but competition will be growing from existing sellers," said Danielle Hale, chief economist at Realtor.com.

In 2022, 93 percent of home buyers had a mortgage interest rate of 6 percent or better. The figure fell to 83 percent in 2024. By the end of 2025, Hale expects only 75 percent of outstanding mortgages will be below 6 percent.

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

Americans place a lot of value on homeownership, according to a Zonda survey, which showed that 20 percent of respondents were willing to pay up to $500 more monthly for a mortgage than their current rent.

More than 10 percent of those surveyed would pay up to $1,000 more for a mortgage than their present rent and another 10 percent plus of those surveyed said they would be willing to pay more than $1,000 above their current rent to own a home.

However, market conditions have locked some 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 home," Zonda Chief Economist Ali Wolf said.

She also noted a government statistic that shows the net worth of homeowner households is $396,200 compared to $10,400 for renters. That's nearly a 40-fold spread.

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