The landscape for the housing market in 2025 is one characterized by uncertainty. During “The Outlook: 2025 Housing & Economic Forecast” session at the 2025 International Builders' Show (IBS), economists from Zonda, the NAHB, and Realtor.com shared how the approach of the new administration, inventory levels, interest rates, and affordability concerns are likely to impact the housing market in the coming year.
As a result, 2025 is likely to be a year of modest supply improvement, modest sales increases, an improvement of the existing-home market, and higher-for-longer interest rates.
Robert Dietz, chief economist for the NAHB, shared the organization is forecasting just 0.2% growth in 2025 for single-family housing starts, while Zonda chief economist Ali Wolf projected 2.5% growth in single-family starts, driven by improving lot supply conditions.
Realtor.com chief economist Danielle Hale shared how the housing market is shifting from a seller’s market to a more balanced state. The cumulative housing months’ supply of approximately 4.1 is the highest level since 2016.
Impacts of New Administration on Housing
The Trump administration has made housing a priority, and, while some initiatives may bring positive change to the industry, Dietz noted how other priorities could bring negative impacts and greater uncertainty to the sector. He highlighted how an extension of the 2017 tax cuts and an effort to reduce regulatory burdens would both be significant positives for the housing industry.
Conversely, inflationary and government deficit concerns could negatively impact the housing industry. Additionally, Dietz said the immigration policy of the Trump administration is likely to impact the housing industry in 2025, with nearly a third of the sector’s trades workforce comprised of non-U.S.-born workers.
“As a result of the election, we now have a unified government. History tells us when you have one political party in control, the federal deficit tends to be larger,” Dietz said. “[From a housing perspective], there are concerns about a rise in the deficit.”
While some have expressed support or comfort with the proposed tariffs, Dietz said he “hates” tariffs and believes “they are a terrible way to raise revenue.” Approximately 7.3% of building materials are imported, with more than half coming from China, Mexico, and Canada.
“[Lumber] is where I’m concerned about building material costs. Lumber right now has a 14.5% duty rate on Canadian lumber. That rate is likely to go near 30% at the end of the summer just due to a bureaucratic action. Then, on top of that, we have the potential for a 25% tariff on Canadian products, and the president has said we need a 25% tariff rate on lumber, just like steel and aluminum,” Dietz said. “So, we could be looking at close to an 80% effective duty and tariff on Canadian lumber. Lumber prices are going to go up this year if that is the policy path that we are on.”
Inventory, Interest Rates, and Incentives
A factor in the housing market becoming more balanced is in part due to the rise in inventory, according to Hale. Realtor.com’s January data indicates active listings increased 24.6% and new listings increased 10.8% year over year. Taken together, total listings increased 17.1% in January compared with 2024, while existing-sales posted a fourth consecutive month of year-over-year growth.
Hale and Wolf highlighted a similar trend playing out in the resale and new-home market: Higher-priced homes are selling more quickly than lower-priced homes. Hale noted inventory is increasing in part due to more entry-level, moderately priced homes being listed, but higher-priced homes are selling more quickly.
In the for-sale market, Wolf shared that 50% of markets analyzed are underperforming historical performance in the entry-level sector. Conversely, a majority of markets are overperforming historical levels in both the move-up and high-end markets. The phenomenon is not surprising, as move-up and high-end buyers are likely to be less interest rate averse than entry-level buyers.
Interest rates are likely to remain above 6% in 2025, suggesting affordability concerns will remain a prominent feature in the housing market. Additionally, would-be homeowners are more fatigued from incentives, with Hale and Wolf highlighting how interest rate buydowns are beginning to wane in popularity.
“Incentives have become a little tricky because they have lost their effectiveness. For a while, a builder could offer an incentive, and the consumer thought it was a short-term thing, and [incentives] drove urgency,” Wolf said. “For the past 18 months, incentives have been pretty prevalent, so consumers don’t feel that desire that if they don’t buy now they will miss out on that deal.”
In addition to a relatively flat year for starts and sales, Wolf suggested builder margins could compress in 2025 due to the cost of incentives, land and labor prices, and the potential for elevated building material costs due to tariffs.
“There’s a lot of things to love from the new administration’s [agenda], what is not to love about pro-growth and less regulation? But if you think about some of the policies, tariffs, immigration changes, interest rates higher for longer, [and] inflation going up, all of those will disproportionately negatively impact our industry versus what we find in the wider economy.”
