Happy New Year! As we enter the mid-point of the decade it is helpful to check the rear-view mirror… as we navigate the exciting road ahead.
During the pandemic, both renters and buyers found themselves at mutual advantage. Mortgage rates were at historic lows. And multi-family owners reduced rents to attract and retain residents.
The Consumer Financial Protection Bureau (CFPB) recently published a report on mortgage market trends and confirmed that the number of mortgage applications dropped by 4.3 million… some 30% in 2022 and 2023.
Mortgage rates – together with monthly payments – have surged since the lows of 2021. In fact, rates shot over 7% in October and remain elevated as we closed the year.
Yet we all remember that mortgage rates have been significantly higher in the past… even in the double-digits environment of the 1980’s.
The good news? There’s a lot of (but rarely if ever enough) supply. Active listings in November were over 12% higher year over year. And reached the highest level since 2020, according to Redfin.
“With the latest data covering the period prior to the election, our national index has shown continued improvement,” explained Brian Luke, S&P Dow Jones Indices:
“Removing the political uncertainly risk has led to an equity market rally; it will be telling should the similar sentiment occur among homeowners.”
Pending home sales – contracts for existing homes – rose in November to the highest level in almost two years, according to the National Association of Realtors (NAR). According to Lawrence Yun, chief economist at NAR:
“Consumers appeared to have recalibrated expectations regarding mortgage rates and are taking advantage of more available inventory… Buyers are no longer waiting for or expecting mortgage rates to fall substantially. Furthermore, buyers are in a better position to negotiate as the market shifts away from a seller’s market.”
The team at K&A expects that mortgage rates will decline in the new year – but could well remain above 6% – and that home price growth will likely decelerate.
Mark Palim, Chief Economist at Fannie Mae, is aligned… and predicts that 2025 may offer a few areas of opportunity:
“We foresee the current affordability crunch hampering activity through our forecast horizon but expect nominal wage growth will outpace home price growth for the first time in more than a decade in 2025, slowly but surely providing some much-needed relief to potential homebuyers.”
Economic and Housing Market Forecast for 2025:
Ten Opportunities for Building Product Brands
As 2025 approaches, stakeholders in the real estate, construction and builder products industries are closely watching economic and market dynamics to anticipate what lies ahead. From demographic shifts and supply chain challenges – the year will no doubt present some hurdles – as well as plenty of opportunities.
1. Resilience Amid Economic Volatility
The US economy has demonstrated remarkable resilience despite challenges such as inflation and geopolitical uncertainties. The financial system remains robust, with lessons from recent disruptions – even amid some regional bank falters – leading to strengthened crisis management protocols. Yes, inflationary pressures persist… but they are moderating. And the labor market continues to exhibit strength. Providing a stable foundation for the housing sector.
2. Mortgage Rates: A Pivotal Factor
While there is potential for modest declines if economic conditions soften, volatility could show determination. Higher rates will continue to impact affordability… making it difficult for many first-time buyers to enter the market. However, as consumers acclimate to these conditions – sales activity may well ascend – driven by pent-up demand.
3. Housing Affordability Challenges
Record-high home prices, coupled with elevated mortgage rates, have pushed downpayments out of reach for many. Even as wage growth improves and housing inventory increases, builders and developers must navigate these challenges by focusing on cost-effective solutions. Buy downs and incentives. As well as targeting markets with high demand for affordable housing.
4. Inventory Dynamics: A Mixed Bag
The inventory landscape will continue to vary by region. Areas like Texas and Florida are seeing growth in available homes due to robust construction activity. While markets such as California remain constrained… with homeowners hesitant to sell and relocate. Increased new home starts and resale inventory are expected to improve, with a projected 12.5% rise in inventory according to Bright MLS.
5. Generational Shifts in Homeownership
Generational dynamics are reshaping the housing market. Baby boomers – with significant equity in their homes – are less affected by mortgage rate fluctuations and continue to dominate homeownership. And in complementary fashion, millennials and Gen Z are entering “peak” life milestones including marriage and parenthood. These shifts are influencing demand for build-to-rent properties… with increasing opportunities for building product brands in 2025.
6. The Rental Market: Stability and Growth
An increasing supply of multifamily units will help to stabilize rent prices. Rising wages and expanded rental options are likely to improve affordability for renters – though high-demand areas will continue to experience pressure – on pricing. Developers have an opportunity to capitalize on this trend by investing in rental properties tailored to the preferences of target demographics.
7. Climate Risks and Regional Variations
Climate-driven risks are playing an increasingly significant role in housing market dynamics. Coastal areas and regions prone to extreme weather events are experiencing slower price growth (and rising costs) related to insurance and property maintenance. Installed building products brands should consider offering an array of solutions that enhance resilience to climate impacts… particularly in vulnerable regions.
8. Supply Chain and Regulatory Challenges
Builders face a “perfect storm” of potential increased tariffs. Skilled labor shortages. And narrow margins. Strategic sourcing and supply chain resilience will be critical. Proactive inventory management, strong supplier relationships and cross-functional collaboration are essential for maintaining operational stability. Additionally, potential regulatory changes under the new presidential administration could positively impact housing recovery efforts and market momentum. What’s more, builders and manufacturers must prioritize sustainable practices to meet the growing demand for eco-friendly construction materials and methods.
9. Opportunities for Innovation
Innovation remains a cornerstone for growth in the building products sector. From embracing artificial intelligence to streamlining supply chains and optimizing energy efficiency… brands that invest in forward-thinking solutions will gain a competitive edge. We are entering a year that promises monumental change and significant disruption. Which creates an increased opening for innovative and fearless brand building. The pace of new technology will be rapid while providing even more opportunities for enhanced marketing campaigns.
10. The Path Forward: Strategic Flexibility
The 2025 housing market will be shaped by a complex interplay of economic, demographic and policy factors. While challenges such as affordability and “higher-for-longer” rates persist, there are significant opportunities to adapt and thrive. Building product brands must remain agile… leveraging market insights to anticipate shifts and align their strategies accordingly. By focusing on innovation – resilience and customer-centric solutions – industry challengers can position themselves for success in the dynamic environment.
As we navigate this era of uncertainty, striking the right balance between technology and human insight becomes increasingly critical. Building materials marketing needs to embrace tools like AI while recognizing the irreplaceable value of genuine creativity. And strategic thinking. As well as, increased attention towards the growing demand for authentic, community-driven engagement. After all, connection and trust will likely outweigh scale and automation. And as the metrics for success continue to evolve, the ability to clearly measure and demonstrate value will separate industry leaders from those left behind.
The challenges of today are real… but so are the opportunities in 2025. Now is the time to lean into both – confidently, creatively – and with the proper support. In this shifting landscape, marketing communications agencies play a pivotal role. By blending expertise in strategy, storytelling and analytics, we help brands adapt to change and stay ahead of the curve.
Whether you’re rethinking your approach to customer engagement – or seeking to solidify your value proposition – an experienced partner can make all the difference. If you’d like to see how we can help you navigate the year ahead, send an email to Steve at sk@kleberandassociates.com to get the conversation started.
