Single-Family Forecast Revised Down

Ed Sullivan
Jul 9
6 min read

Updated: Aug 8

Revision Suggests More Stress on Difficult 2025 for Cement & Concrete

Introduction

The outlook for 2025 single-family construction is expected to weaken compared to The Sullivan Report’s Spring Forecast projections. This somewhat darker view reflects a slightly more adverse interest-rate outlook, a weaker job market, and heightened economic uncertainty. Combined, these factors push the single-family starts outlook from a marginal decline expected in the Spring Forecast for 2025, to one more significant. With that conclusion, the expected decline in 2025 U.S. cement and concrete consumption worsens.

Adverse affordability conditions constrain single-family starts activity. Without meaningful gains in affordability conditions, the single-family construction sector is unlikely to improve.[1] Given these conditions, the Spring Forecast for 2025 expected:

Mortgage rates would drift in the 6.5% to 7.0% range during the first half of the year, followed by a 75-basis-point reduction during the second half of the year.
New home price increases would moderate from a 4.2% appreciation rate in 2024 to 1.1% for 2025.
Labor markets would slowly weaken but not enough to act as a significant adverse factor.
Home insurance rates would increase at roughly 5%. These first half of 2025 assessments were accurate.

These assessments were supported by further analyses regarding the impact of tariffs and harsher immigration policies on single-family construction costs. Combined, each of these factors were expected to prompt a modest single-family construction decline this year.

Things, however, are expected to change. As a result, a more pronounced retreat in starts activity is now expected. The targeted 75-basis-point reduction in mortgage rates that was expected to materialize during the second half of the year, for example, is now off the table. While some easing in rates is expected to materialize, most of the declines will materialize after the peak of the selling season has passed. For now, the year-end mortgage rate is put at roughly a 6.5% rate, compared to roughly a 5.8% rate envisioned in the Spring Forecast.

Homebuyers’ concerns about inflation, job security, and the risks of recession were underestimated in the Spring Forecast. In the context of this uncertainty, buyers are now expected to be more cautious than previously anticipated. The extra caution translates into a hesitancy to buy and lower sales activity.

As a result, homes offered for sale are sitting on the market longer. The Months’ supply of new homes on the market indicator reached 9.8 months. (Five-months’ supply is generally considered average.) Aside from a brief period when the Fed started raising interest rates in 2022, the last time it reached such a high level was at the onset of the Great Recession. In this context, it’s easy to understand why homebuilders’ confidence is at its lowest level since 2012.

Homebuilders react to high inventories in three ways. First, they sweeten the deal to potential homebuyers by upgrading home finishes at no extra charge, engaging in mortgage rate buydowns, and providing closing cost assistance. Second, they cut prices. According to a recent NAHB survey[2], 60% of home builders engage in one of these incentives. This, however, is made more difficult in the context of rising costs that have been heightened by tightened immigration and tariffs. In fact, the NAHB survey further noted that more than 30% of homebuilders have cut prices. Third, they slowed the pace of new home starts and production. It's at that point cement and concrete consumptions are adversely impacted.

"In fact, the NAHB survey further noted that more than 30% of homebuilders have cut prices...[and] slowed the pace of new home starts and production...it's at that point cement and concrete consumptions are adversely impacted."

Arguably, higher inventories suggest a moderation in new home prices. The Spring Forecast, however, reflected only a 1.1% increase in prices for 2025. The higher inventories will soften even that modest increase. This adjustment’s impact on overall affordability is much less significant than the movement in mortgage rates. Taking it all into consideration, the improvement in affordability that was expected to materialize in the second half of the year in the Spring Forecast is now more muted.

Economic performance during the second half of the year will also play a critical factor in single-family starts activity. We await data on the Administration policies’ impact on inflation and employment conditions. That data will play a key role in determining the next moves by the Federal Reserve. Thus far, no significant, visible adverse effects on the economy have materialized from tariffs. To be fair, enough time has not passed for the impacts to materialize in the data. Those impacts will not get reflected into the data until government reports published in August and September[3].

I am not optimistic that tariffs will continue to show a benign impact on the economy. Price increases will materialize, but their impact could be muted by weakening economic conditions, particularly in the service areas of the economy. Either by higher inflation or weaker economic and job conditions, consumers at the lower-income quartiles will struggle. Economic growth will be threatened. These impacts will likely be adverse and seep into the economy over a longer period of time than many expect.

Tax benefits from the One Big Beautiful Bill Act (OBBBA) will materialize this year. That is expected to support a 10 to 15 basis point improvement in real GDP this year. Near term, it will help diminish - but not eliminate the adverse consequences of tariffs and harsh immigration policies on the economy. However, it will also add to the federal deficit. Federal debt will increase. Some upward pressure on long term rates is expected – including mortgages.

If the economy unfolds as expected, the cost of goods to consumers will increase, and the economy will soften – akin to stagflation. This will make the Fed’s decision to cut rates more complex. The result could be to delay or moderate the rate cuts. Under this economic scenario, the lending environment will become more perilous. Banks will grow more risk adverse. Credit will tighten. Even as rates begin to decline, difficulty in getting credit access could delay or moderate a recovery in single family starts.

Combined, all this could prompt a larger decline in single family construction in 2025 than previously expected and delay its recovery. With economic weakness, mortgage rates will ease modestly in late 2025 and early 2026. A click or two reductions in mortgage rates, however, is not going to improve affordability much. A robust recovery in single-family construction will not materialize in weakened labor markets or high prevailing interest rates.

If the outlook outlined materializes, it will take time for both of those factors to work themselves out. There is a threshold mortgage rate for a meaningful improvement in homebuyer affordability. I estimate the threshold rate at 5.5% for a 30-year conventional mortgage. Once that threshold rate is achieved, it will ignite a significant recovery in the housing sector. Until that time, modest improvements in affordability will likely take place in the context of a weakening labor market – suggesting only a tepid 2026 single family construction recovery.

[1] Since 2020, the average monthly payment for a new home has doubled. On top of that, in some regions, insurance premiums have climbed dramatically. These high costs have deterred ownership. More than 65% of U.S. households own a home. For young adults that rate is at 39% - down from 45% 20 years ago. First-time homeowners are currently at the lowest level ever.

[2] NAHB/Wells Fargo Housing Market Index, July 2025, https://www.nahb.org/news-and-economics/housing-economics/indices/housing-market-index.

[3] Each time the Administration pushes back the date new tariff rates will become effective, it also pushes back the data showing tariff impacts. Pushing back the effective tariff date from July 9th to August 1st could push back the data, evidencing their impact on inflation by a month.

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