Tepid Times Ahead for Home Construction and Remodeling, Two Economists Forecast

Separate presentations Oct. 12-13 by a pair of housing economists covered different ground but reached the same conclusion: Building and remodeling prospects are weak at best.

"It's not going to be very exciting over the next couple of years," Mark Boud, founder of Real Estate Economics, told members of CBUSA at its annual meeting Oct. 12.

You should be thinking of a scenario in which the volume of sales for remodeling materials will decline even as prices rise," Zonda's Todd Tomalak said in a webinar Oct. 13. Tariffs, the war with Iran, and high mortgage rates "put off the timing of our [previously forecast] remodeling recovery by at least nine months" into the fourth qarter of 2027, he said.

Indeed, Zonda had been predicting 930,000 single-family housing starts this year and 945,000 in 2027. Now it's expecting 2026 will have 880,000 SF starts, and only 885,000 starts next year. Spending for new construction products will drop 2.2% this year to $338.9 billion and slide another 0.4% in 2027 to $337.7 billion, Tomalak expects.

Meanwhile, residential improvement will grow this year by 2.7%--less than the inflation rate--to $606.3 billion, Zonda now predicts. It expects another 2.3% growth in 2027 to $620.4 billion.

Both experts pointed to underlying factors contributing to the malaise. For instance, Boyd's read of 10-year Treasury bond yields leads him to expect that 30-year fixed-rate mortgages will stay above 7% for at least the next 18 months. He also believe the inflation rate will remain above 2.5% through 2031, putting pressure on the Federal Reserve to keep lending rates high as it keeps pushing to reduce the inflation rate to below 2%.

In general, income growth is rising more slowly than cost-of-living growth. But Boyd cautioned that even the luxury market will moderate in some markets, such as all of Florida and Texas south of Dallas-Fort Worth. Comparatively hotter are Utah; Nashville, TN; Charleston, SC; Boise, ID; and both Raleigh and Charlotte, NC. Cleveland and Memphis, TN, are weaker.

Tomalak said University of Michigan consumer sentiment surveys show that higher-income people aren't all that more pessimistic than in the past about whether this is a good time to buy a new home, and in fact a few upper-income people are more active than usual. However, a sister question revealed they are four times more uncertain about making a purchase. It's uncertainty that will slow the luxury market, he said.