Policy uncertainty. Tariffs. Labor market concerns. Inflation risks. Stock market volatility. Low housing affordability. Together, these factors have created a challenging economic landscape in the first quarter of 2025, contributing to a soft start for the housing market.
The economic picture is constantly evolving, with new headlines each day. To help synthesize the big-picture trends, economists from Zonda, the NAHB, and the National Association of Realtors (NAR) spoke with BUILDER to share factors impacting housing and the overall economy as well as important developments to track during the spring.
Demand Patterns
Ali Wolf, chief economist at Zonda, explains that in the past month, housing market demand has started to feel more subdued, describing the trend as ‘fine’ but leaning toward negative.
“Fundamentally, nothing has changed dramatically in the economy,” says Wolf. “What has shifted is consumer confidence.”
Uncertainty around the labor market and federal policy has frozen demand from many would-be home buyers. Zonda’s latest New Home Market Update found new home sales dipped nearly 12% in February compared to 2024. Similar patterns are taking place in the existing-home market, with sales down 1.2% on a year-over-year basis in February 2025.
“Home prices continue to gain [for existing-home sales], and they have increased 20 consecutive months on a year-over-year basis,” says Jessica Lautz, deputy chief economist and vice president of research at the NAR. “We are [also] still lacking housing inventory and it’s still below where we were in February of 2020.”
At the NAHB, chief economist Rob Dietz says his outlook for the market has shifted from cautious optimism in mid-February to “near-term reluctant pessimism.” Positive forces in the industry—the structural housing deficit and positive demographics—are being cancelled by frustration about policy uncertainty, concerns about labor, and caution by prospective home buyers.
“We’re thinking the risk of recession right now is about 20%; in any given year, it’s about 10%,” Dietz says. “What I think we are seeing is an economy that has hit a bumpy patch that is moving into slow growth mode. It is doing so because of the uncertainty and concerns over trade policy. I am skeptical of the idea that the economy can adjust on a dime and produce the goods and services that are otherwise imported.”
Over the coming months, Wolf, Dietz, and Lautz say job report numbers, inventory figures, consumer confidence, stock market behavior, and GDP growth will be important to track.
“Numbers that get down to 50,000 a month job gains would indicate an economy approaching stall speed,” says Dietz. “For GDP growth, if it’s below a 1% growth rate [in the first quarter] that, too, is an indication of an economy approaching stall speed.”
Tale of Two Markets
While the housing market has faced challenges in 2025, it’s difficult to define with a single blanket statement. Some markets are experiencing strength, larger builders have advantages over smaller builders, and higher price points are faring better than entry-level product.
“Larger builders have an upper hand in today’s market. Their land positions, use of incentives, economies of scale, and ability to drive price to increase sales have allowed them to gain market share and stay competitive,” Wolf says.
Across the new-home and existing-home markets, the higher-end markets have remained relatively more resilient. Buyers in these markets tend to be wealthier and possess housing equity, and therefore are less impacted by elevated mortgage rates. Lautz says the strongest sale activity in the resale market is currently occurring above the $1 million price point.
“At that higher price point, someone is more insulated from concerns over inflation or concerns over saving for a down payment as a first-time buyer,” says Lautz. “A repeat buyer has housing equity, they can make a sizable down payment or even purchase with all cash.”
The NAR’s 2025 Home Buyers and Sellers Generational Trends Report indicates that the generation most likely to benefit in the current housing market is baby boomers and most likely to be negatively impacted are millennials. Baby boomers represented 42% of all buyers between July 2023 and June 2024. Of that cohort, half of older boomers (aged 70 to 78) and 40% of younger boomers (aged 60 to 69) purchased homes entirely with cash. Conversely, 71% of younger millennials (aged 26 to 34) were first-time buyers and nearly 90% of this age cohort relied on financing for their purchase.
Tariffs, Immigration, and Federal Policy
Dietz says frustration with policy uncertainty is one of the top concerns he hears from builders as he travels the country. There are potential positive developments for builders—including an extension of the 2017 tax policies, greater clarity on the Waters of the United States, and a loosening of energy code requirements.
“The tax policy has to work through Congress; that takes time. The regulatory actions require a whole set of procedures that don’t have an impact overnight. Those are long-run benefits,” Dietz says. “In the meantime, how do you plan?”
Wolf says the uncertainty over what policies will be enacted can impact decisions from hiring decisions to the scale of investments made by businesses. Hesitancy is likely only enhanced by concerns related to tariffs and labor supply.
President Trump’s April 2 reciprocal tariffs announcement spared Mexico and Canada, but both countries are already subject to 25% tariff rates. Since Canada accounts for roughly 85% of all U.S. softwood lumber imports, and Mexico contributes significantly to U.S. imports of gypsum, concrete, and appliances, these tariffs are likely to affect the cost and availability of building materials. China, which now faces a tariff rate above 50%, is a significant importer of raw material and components used for U.S. home building.
“We’ve estimated that for the tariffs under active discussion, per single-family home a cost impact of approximately $9,000,” Dietz says. “That’s a moving target because prices are going to adjust and trade flows are going to change availability.”
The rising cost of building materials comes with added uncertainty around construction labor. Nearly a third of construction workers are non-native born, and the industry already faces a shortage of more than 300,000 workers. While efforts will likely be made to increase domestic production, Dietz says labor remains a large question mark.
“We know we have a middle skills worker shortage that has already affected construction, manufacturing, and transportation,” Dietz says. “We’re doing that in the context of deportations which could further reduce labor supply. The set of policies do not complement each other and reflect inflation risk for this year after the progress that we’ve made over the past couple years.”
Regional Patterns
Regionally, markets on the West Coast, Midwest, and Northeast are currently seller’s markets, making it less competitive and easier to navigate, according to Wolf.
“Higher production, higher growth markets along the Sunbelt now have returned to balanced market territory,” Wolf says. This means that while job growth and migration numbers still look favorable, builders are finding the market is much more competitive and sales have slowed.”
Several markets in Florida have shifted to a buyer’s market, where buyers have more negotiating power due to factors like low affordability, rising insurance and property tax costs, and regulatory changes.
Moving forward, Dietz says markets with large numbers of government employees or markets with economies based on imports or exports could be negatively impacted.
“Government employment or exposure to trade with exports and imports are all areas where you are going to see job losses,” Dietz says. “That is going to take some momentum away from home buyer and renter demand.”
