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   As we move further into the 2025 the real estate market, a continued pattern of the shortage of listing inventory still hangs over much of the country. Let the professionals at Property Dynamics make your real estate needs become a reality. The time is right to sell or buy your dream property! 

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A Housing Expert Sizes Up the Outlook for Home Sales, Mortgage Rates, and Tariff Impacts...

After three straight years of declining sales, the U.S. housing market is emerging from a cold winter into an uncertain spring. House prices are still expensive, mortgage rates are still high, and buyers, sellers, and builders all are struggling to understand how the Trump administration’s trade, immigration, and regulatory policies will change the landscape, literally and figuratively. Meanwhile, the historically important spring selling season is about to start.

Barron’s recently checked in with Robert Dietz, chief economist at the National Association of Home Builders, to get a read on the housing industry’s anxieties and opportunities. What do tariffs mean for housing costs? Where are mortgage rates heading? And will supply stay constrained? You’ll find Dietz’s answers to these and other questions in the edited interview that follows.

Barron’s: What is your forecast for the U.S. housing market this year?

Robert Dietz: I forecast at this year’s NAHB trade show that single-family building would be flat in 2025. Remodeling will continue to grow. In fact, the  remodeling market is likely approaching a supercycle. Remodeling is often a necessary step for seniors who stay in their homes. About 10 years ago, remodeling accounted for less than 30% of residential construction and activity. Today it’s closer to 40%. In the next five to seven years, it is likely to rise to 45%.

There will be a lot of similarity to last year in terms of mortgage interest rates—that is, high volatility and rates trending down to 6%. Down-payment requirements will be about the same, which is to say, challenging. We aren’t looking for outsize wage growth. All of that suggests affordability conditions will be roughly the same as last year, with maybe a little additional choice when it comes to inventory.

What does that mean for home prices?

On a national level, we expect a slight gain in prices because of ongoing lean inventories, but the rate of growth is going to slow because of affordability constraints. Our price forecast for this year is close to a 1% growth rate, lower than many forecasts.

In the near term, we expect existing-home inventory to rise. For builders and existing-home owners, there is simply going to be more competition. The result is that price growth should be lower than last year.

In some [places], you have already seen softer prices. For example, in Austin, Texas, resale pricing is now down [about] 15% from its [2022] peak. Austin is a good example of a market with an outsize share of first-time home buyers. Any market that is heavily weighted toward first-time buyers is going to be a lot more sensitive to changes in interest rates. Another market like that is Denver.

We see an uneven but somewhat declining trend for mortgage rates [as monetary policy eases]. We might see a 5.9% 30-year fixed-rate mortgage at the end of 2026, down from a recent 6.65%, so we are a year or two away from that.

The wild card will be what kind of progress we see on inflation. Most buyers now recognize that mortgage rates aren’t going to come down to 4%. The challenge is down-payment requirements. Unless you get a rise in incomes and an increase in savings, the down-payment requirement essentially becomes a showstopper determining whether or not someone can buy.

New-home construction rose 11.2% in February from January’s level. What do you make of that?

One month isn’t going to be a useful exercise this year. Single-family permits, the leading indicator of where construction is going, have been virtually flat since December. Starts can be moved around by weather issues and labor and availability issues, [and] are going to be a lot more volatile this year. At the end of the year, we expect single-family starts to come in at around a million, but expect it to bounce around.

What were your top takeaways from this year’s trade show?

There is a lot of momentum in the industry among remodelers and single-family builders. The apartment sector is a bit down right now, but there is a sense that after a period of slowness, discussions [about rent growth] are starting to take place again.

The No. 1 concern I heard expressed at the show was economic and policy uncertainty. A lot of it is related to tariffs, immigration, the extension of the 2017 tax cuts, [and] how quickly regulatory reform will bring benefits to the land-development market and construction space. There is also uncertainty on the macro side about monetary policies. While the Federal Reserve doesn’t control long-term interest rates, the Fed has an impact on the short end of the curve, which directly affects the cost of builder financing.

How are builders thinking about the Trump administration’s tariffs?

They have concerns [about the cost pressures that tariffs could create]. Roughly 70% of building materials are imported, and of that total, more than 20% comes from China [and] a bit more than 20% comes from Canada and Mexico. It isn’t just lumber. It’s gypsum, dry wall. A third of appliances are imported. A large share of refrigerators are manufactured in Mexico.

The higher cost of building materials is a negative risk factor. Even those builders who are supportive of tariffs—and there are some who think tariffs are part of a comprehensive plan that would reduce government spending and the deficit, which would mean lower interest rates—would like to know the rules of the road. What do they need to plan for in acquiring building materials? What should they be telling their subcontractors?

We’re asking builders about price effects. Building-materials suppliers are beginning to pass along some price increases, or have telegraphed to builders that price increases are coming. Builders who are able to estimate the impact of tariffs on building-materials pricing put the impact at $9,200 [per house]. Home buyers will need to have discussions with builders about how those higher costs will affect the product.

What are the knock-on effects of tariffs, beyond the rising price of materials?

Tariffs have to be paid by somebody. Usually, that is the consumer. They are going to affect the cost of construction—of homes and apartment buildings. Remodeling construction will become more expensive. If tariffs are significant, prices will move up, but probably just as a one-time adjustment, rather than a persistent increase.

Tariffs will affect inflation. The primary driver of the gains in consumer inflation has been changes in shelter inflation. Higher interest rates help fight inflation, but the primary source of inflation in housing is not enough attainable housing supply. Higher short-term interest rates are harming the supply, which worsens the problem. The timing [on tariffs] is problematic, as we are trying to land the plane in the inflation fight.

Deportation of undocumented immigrants has also been a Trump administration priority. Will that affect home building?

Data from the American Community Survey indicate that about a third of construction workers aren’t born in the U.S. That doesn’t tell us whether someone is here legally or illegally. But it suggests there is a potential risk to the construction labor force when we already have a persistent shortage in skilled labor.

It re-emphasizes the need [for the construction industry] to recruit people from high school and community college and trade schools. The industry has to do a better job if it’s going to maintain head count in terms of workers.

How does policy uncertainty affect buyers and sellers?

A home is typically the largest purchase that a household will make. Buyers want to feel certain about their jobs, income, and credit conditions. As uncertainty about [policy and the economy] increases, some would-be buyers will move to the sidelines.

Low buyer traffic is a warning that some may stay on the sideline due to uncertainty with respect to policy and their own economic circumstances.  I expect extension of the 2017 tax rules to lift consumer confidence and have a positive impact on buyer traffic for home builders, however.

What other likely policy changes are builders looking forward to?

Home builders have a positive view of the impacts that would come from extending the 2017 tax cuts.

Builders are also hopeful that we will see regulatory policy move in a direction that would help increase housing supply, which would be positive for renters and home buyers. Zoning rules, permit fees, impact fees, delays in terms of getting projects approved and started—all of these are reasons that we have underbuilt housing.

My hope is that the Trump administration [will] encourage state and local governments to bring those burdens down and work with localities to find the inefficient rules and weed them out. That’s an area where we’re going to see some improvement, but it doesn’t happen overnight.

The Trump administration previously talked about opening up more land for timber harvesting. That would have an impact [on material availability] as long as the sawmill industry was expanding. A policy issue I was initially skeptical about but have come around to seeing as having a lot of potential is the idea of opening up federal land to build on.

If you look at a map of federal land, there is a lot in the West [and] Mountain States. It struck me as a mismatch between the need for housing and what was available. I’ve come around particularly with respect to its possibility for infill development. Think about land held by federal buildings or occupied by large [government] warehouses. Federal property that is no longer needed could be repurposed for building town houses or medium-density housing.

The cost and availability of property insurance has emerged as a problem for many buyers and homeowners. How can this situation be resolved?

Some of the gains in insurance costs were due to price increases for reinsurance. Some of it is policy failure. Home buyers should assume [that property insurance costs] are going to increase in the years ahead.

There are things the construction industry can do that could help. The cost of  insurance is the cost to rebuild and repair, so all of the things we have identified as challenges for the supply of housing also go into that calculation. If we can increase the construction labor force and maintain supply chains and access to affordable building materials, [that] will help because it will reduce the risk for insurance companies.

Policymakers will have to look at some of the climate issues. Wildfire risk is a factor in the Western U.S. We simply don’t take care of our forests the way they do in a country like Germany. The density of the timber stock is the reason why we have forest fires, particularly in California. Smarter forestry policy can reduce some of the forest-fire risk, and also increase the availability of timber for the sawmill industry. Then I wouldn’t be as concerned about the availability of imported softwood lumber.

Home listings are more plentiful than last year. Is there still a supply gap?

It is important to distinguish between cyclical inventory and a structural housing deficit. The structural housing deficit is a mismatch between the size and status of the housing stock versus the population. [Look at] the demographics. Two decades ago, one out of 10 young adults essentially lived on their parents’ couch. Today, it’s more than one out of five. That’s a consequence of the structural deficit.

The U.S. continues to have a structural housing deficit of about 1.5 million homes. That’s both single-family homes and apartments. Some of those larger estimates, like a four million deficit, are too big. It’s about one year’s worth of production.

Home purchase costs are still challenging. Any encouraging words for buyers?

A common question I get is, how do we get out of this? Do home prices have to go down 10% or 20% for affordability to improve?

In the medium term, improvements in housing affordability will come from a declining trend [toward] 6% mortgage rates, additional housing supply, and wage gains. The combination of those factors should produce some gradual improvements in housing affordability over the next four to five years.

Thanks, Rob. (Write to Shaina Mishkin at shaina.mishkin@dowjones.com)             

​  ​​​      What's next for the US housing market - Today's Insight for tomorrow's future.