Tough year, big opportunities ahead
This year hasn’t gone the way many contractors hoped. Single-family starts are down, financing is tight and pressure’s building on all sides. But opportunity is still out there if you know where to look.
We asked Robert Dietz, Chief Economist at the National Association of Home Builders, to break down what matters most for Q4 planning, from interest rate shifts to the segments quietly gaining ground.
— Interview by Margot Lester, edited by Bianca Prieto
What should contractors be watching in the final quarter and why?
Residential construction has had a disappointing 2025. After gains for single-family home building in 2024, and based on the data thus far this year, NAHB is forecasting a decline for 2025 construction starts. However, a return to easing for monetary policy from the Federal Reserve will indirectly lower mortgage interest rates on the demand side of the market and will directly lower interest rates on acquisition, development and construction loans for builders and land developers. These changes will provide momentum to the industry as we approach 2026.
What other policy trends do you have your eye on?
While the policy focus in Washington, D.C. has been on issues like tariffs, taxes and border enforcement, we expect greater attention to be paid to regulatory policy reform as 2025 ends. Home construction could benefit greatly from a more efficient regulatory policy regime at the federal, state and local levels of government. Prior NAHB research indicates that about a quarter of the final sales price of a typical newly built single-family home is made up of regulatory costs. If we hope to solve the housing affordability crisis, reducing these costs has to be part of the playbook and the Trump administration has promised to pursue policies with this in mind.
How does new home demand look?
There is currently a 9.2 months’ supply of new construction on the market, above the 7.6 reading from a year ago and well above the 6-month measure considered as balanced. This had been offset by low levels of existing home inventory. But as the resale market has experienced inventory gains, the higher overall inventory has placed downward pressure on home prices in many markets. Lower interest rates taking hold in the fourth quarter will increase housing demand and provide some support for current inventory levels.
Any surprises in the data?
Townhouse construction has outperformed the rest of the building market. The level of single-family attached construction has remained stable. And due to declines for other forms of building, the townhouse construction market share has risen above 18% on a one-year moving average basis, an all-time high for the data series. Separately, on a regional basis, single-family home building in the Midwest is up 8% thus far in 2025 due to relative advantages in housing affordability.
What's a trend contractors may be ignoring that's worth attention?
A market for which we expect to see outsized growth is home remodeling. The NAHB Remodeling Market Index (RMI) reflects this potential strength. Unlike NAHB surveys of single-family and multifamily construction, the RMI has not fallen out of a positive reading during the entire post-COVID period. This reflects strong, ongoing sentiment readings for remodelers. And with $34 trillion in home equity held by homeowners, the potential for falling interest rates on HELOC loans and an aging housing stock, the potential for remodeling growth is solid in the years ahead. The quarterly RMI surveys have more detail on the types of projects that are most in demand as this market expands.
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The Level is curated and written by Margot Lester and edited by Bianca Prieto.
