NAHB economist offers an updated look at the market.
Late last month National Association of Home Builders economist Dr. Robert Dietz joined the Quad Cities HBA to share an updated look at the 2025 housing market. More than 130 people attended the event, including Illinois State President Jason Paliatka and Iowa State Board President Rachel Flint. Following dinner and a look at the national and local economies, which Dietz said are something of a moving target this year, the evening concluded with a Q&A session with Dr. Dietz.
“President Trump seems to change things every hour,” Dietz joked, “so that presents a challenge for forecasters like me.”
As 2024 ended, Dietz had predicted that 2025 would be a year of change, but things have been changing every more quickly than he anticipated. “We haven’t seen a market changing this quickly since 2020,” he said, “and the result of that constant changing is that we’re looking at a wait-and-see economy right now from both a consumer and a business perspective.”
Although economic uncertainty can often lead to positive changes in economic policy, Dietz says that has not happened yet this year. Multiple factors are playing into that, including the threat of tariffs, tension between the President and the Federal Reserve Board Chairman, and consumers who are hesitant to take action.
“Potential buyers were already frustrated with home prices,” Dietz said, “and then the economic uncertainty during the first half of the year has just driven them into a wait-and-see mindset.”
Many economists and financial experts have that same mindset right now, which is evident in most of the statistics Dietz shared. “Economists hate tariffs, and consumers expect higher prices because of tariffs, which can become a self-fulfilling prophecy. Prices start to go up in anticipation,” he said.
During the first half of 2025, inflation had been on a very slow decline, but uncertainty over tariffs brought that to a halt. And Dietz said it would take much more than consumer confidence to have a significant effect on inflation. Ultimately, he pointed out three key data points to monitor. Those points indicate what can be expected of the housing and construction markets.
Inflation
“Inflation reached a 40-year high in June of 2022,” he said, “and the largest contributor was shelter inflation. Increases in the cost of housing now make up more than 50% of total inflation.”
That factor, Dietz said, is evidence that addressing the issue of affordable housing is more than an industry concern; it’s an economic concern. “Reducing costs, whether it’s the cost of supplies and materials or the cost of regulation, is key to addressing not just housing but inflation, too,” he said.
Government spending
Although most Americans would say that interest rates are the reason for consumer hesitation, Dietz said the real cause is much bigger. “Interest rates are less of a monetary policy problem than a national debt problem,” he explained.
There’s a direct relationship between national debt and interest rates. As national debt climbs, so do the rates. During times of economic growth, the debt-to-GDP ratio has been far lower than it is today.
“Think what you want about Elon Musk and President Trump’s budget cutting,” Dietz said. “But the fact is, government spending is up 48% since COVID. If you care about interest rates, you need to advocate for less government spending. Interest rates won’t come down if spending keeps climbing.”
Labor and supply
Like inflation and government spending, the costs of labor and materials are closely related to government policy and practice.
Immigration policy had concerned many in the construction industry because of the shortage of skilled labor. In reality, policy itself has not changed, but enforcement has increased. “Whether they entered the country legally or illegally, one-third of construction workers were born outside the U.S.,” he said.
If we are to address the decline in skilled labor, Dietz said that has to come through education and awareness at the high school level as well as good immigration policy to support those who have worked within the system as well.
“Government regulation is a huge factor in the cost of housing,” Dietz said. “It currently makes up 25% of the cost of a new home. And tariffs will only exacerbate that. For example, 80% of refrigerators are built in Mexico. Much of our lumber comes from Canada.”
Although encouraging a manufacturing renaissance is a worthy economic goal, Dietz said that renaissance isn’t going to happen overnight, and relying on tariffs to spur that change could be costly. It would take five to ten years to develop lumber mills in the U.S. with the capacity to replace foreign lumber,” he said. “This year’s tariffs won’t change that.”
Despite the cautionary tone of Dietz’s economic statistics, he concluded with some positive highlights for the industry. “Iowa might see a slight decline in single-family housing starts for 2025, but remodeling is already bullish, and if rates drop at all, this segment of the market will get active fast. Keep your eyes on the long game. Changes in population growth are a good indicator of when and where the market is going to see a boost, and communities that are pro-business in their policies are the ones that grow.”