The housing market is at a critical juncture. The Fastmarkets ‘Outlook for the US housing market 2025’ webinar unpacked the current challenges facing market participants. These include affordability pressures, demographic shifts and market volatility. Jennifer Coskren, director for wood products, and Dustin Jalbert, senior economist for wood products, shared insights on adapting to changes in the wood products industry and expert insights into what lies ahead.

Learn how builders, buyers, and policymakers can navigate an evolving housing landscape.

Key takeaways for the US housing market

1. Falling builder confidence and construction trends
High mortgage rates and material costs are driving builder pessimism, despite strong demand in key areas. Builders face significant challenges sustaining profit margins amidst affordability pressures.

Additionally, tariffs and the impact they will have on the construction supply chain is presenting a near-term risk to builders, further impacting their confidence in the market.

"We’ve seen builder pessimism steeply outpace actual declines in construction starts, creating one of the largest disconnects since 2012." Jennifer Coskren

2. California wildfire rebuilding
The rebuilding process following California wildfires is anticipated to be exceptionally slow due to labor shortages, regulatory hurdles and insurance challenges.

Moreover, many homeowners are struggling to find skilled contractors and affordable building materials to reconstruct their homes. As a result, there is a growing demand for alternative building methods such as prefabricated homes and modular construction. These methods can help streamline the rebuilding process and potentially save time and money for both homeowners and builders.

Furthermore, insurance companies are also facing challenges in accurately assessing property damage and providing timely payouts, leading to delays in the rebuilding process. This has spurred discussions about implementing policy changes to better support homeowners in disaster-prone areas.

Overall, the devastating impact of California wildfires on communities highlights the need for more efficient and streamlined processes in the rebuilding phase.

"Insurance challenges, high regulation and the magnitude of destruction mean rebuilding California’s wildfire-affected areas will likely take years to progress at scale." Jennifer Coskren

3. Demographic shifts and the immigration surge
Demographics remain a near-term support for the housing market, but questions remain about the full impact of the recent surge in immigration. These tailwinds will drive shelter demand for medium term.

Currently, we are still seeing a high number of young people continuing to live with their parents. The share of young adults living at home is likely to stay high as culturally living with parents becomes more acceptable. Additionally, rising housing costs limit the potential benefits for young adults entering the market.

Despite this, the share size for the millennial generation has been historic. The looming question now remains: Will it continue? From 2000 to 2021, the number of 25-34 year olds rose by close to 6.0 million people. Following an immigration surge that fuelled the fastest population growth the US has seen in recent years, the expected drop will have a lasting effect on the housing market.

4. Mortgage rates and affordability challenges
A sharp rise in mortgage rates has contributed to affordability challenges and stasis in the existing market. The spread of mortgage rates with the 10-year treasury rate are well above historical averages. However, this spread is expected to narrow as inflation slows and there is more certainty around Fed expectations.

In recent months, rates have begun to retreat, but research suggests rates around 5.5% to 6% may be the critical threshold to unlock housing demand. Affordability pressures continue to be a key barrier for existing and new homeowners.

"The threshold for significant housing demand to return is likely around 5.5% to 6% mortgage rates. That’s when we’d see homebuyers re-enter the market in earnest." Jennifer Coskren

This can be attributed to rising housing prices and mortgage rates, making it difficult for first-time buyers to enter the market. This trend is expected to continue as interest rates are predicted to rise in the coming years.

5. The future of construction
New construction is projected to struggle through 2025 before seeing gradual improvement in 2026. Mortgage rates are set to continue to ease with larger declines coming in 2026. Additionally, by next year the uncertainty in the market caused by tariff implementation is expected to dissipate.

This will allow housing starts to jump around 8% in 2026 and another 6-7% in 2027.

Source: fastmarkets.com