Economic Outlook by Dr. Robert Dietz, NAHB

Key Takeaways

The Housing Deficit Is Shrinking

Dietz noted that the long-discussed U.S. housing shortage is beginning to narrow. NAHB now estimates a housing deficit of approximately 1.2 million units and expects that gap to close by around 2030 as household formation slows and housing construction gradually catches up. While the industry has spent much of the post-Great Recession period focused on undersupply, Dietz believes the narrative will begin to shift as the market enters a new phase later this decade. 

No Single Solution to Housing Affordability

Dietz emphasized that housing affordability challenges stem from multiple supply-side constraints, often referred to as the “Five Ls”:

• Labor shortages
• Limited lots and land availability
• Lending constraints
• Lumber and material costs
• Legal and regulatory burdens

Because these challenges are interconnected, he stressed that there is no simple policy fix. Progress will require ongoing efforts across workforce development, regulatory reform, land-use policy, financing, and material supply chains.

Economic Outlook

Dietz characterized the U.S. economy as experiencing moderate growth, with GDP growth projected near 2.1% annually over the next several years. Recession risk remains elevated at approximately 35%, largely due to economic uncertainty surrounding tariffs, trade policy, immigration enforcement, government intervention in markets, and geopolitical tensions. 

Despite these concerns, he highlighted one major positive trend: massive investment in data centers and artificial intelligence infrastructure. Dietz believes these investments could drive future productivity gains, which historically have been the primary source of sustainable wage growth. Higher wages would help offset housing affordability concerns over the long term. 

Consumer and Labor Market Conditions

Consumer finances remain generally healthy, with mortgage delinquency rates relatively low. However, Dietz pointed to growing pressure in auto loans, credit cards, and student loans, particularly among younger households. Auto loan delinquencies and underwater vehicle loans are becoming a concern as they limit consumers' ability to qualify for mortgages. 

The labor market has weakened compared to recent years. Job creation has slowed, unemployment has edged above 4%, and labor force participation has declined. Iowa has been particularly soft, with statewide employment remaining near pre-pandemic levels and down from late-2024 employment levels. Cedar Rapids employment remains below its February 2020 level, while Iowa City has shown modest growth. 

Inflation and Interest Rates

Dietz argued that housing costs were a major contributor to inflation for several years because shelter costs rose faster than overall inflation. More recently, geopolitical events, particularly energy markets affected by the Iran conflict, have become a larger inflation driver. 

As a result, he expects mortgage rates to remain elevated. The presentation forecast indicates 30-year mortgage rates will likely stay above 6%, with rates near current levels potentially persisting through the remainder of the decade unless inflation eases significantly. 

Dietz also expressed concern about the federal government's growing debt burden, warning that long-term deficits could continue putting upward pressure on interest rates. 

Housing Supply Challenges

Several ongoing supply-side pressures continue to affect homebuilding:

• Residential construction input costs have increased 8% to 10% year-over-year.
• Aluminum and copper prices have risen sharply.
• Labor shortages persist, with approximately 326,000 open construction positions nationwide.
• Immigration enforcement is creating additional workforce challenges in some markets.
• Regulatory costs now add an estimated $131,734 per new home, representing more than 26% of the final home price. 

Dietz highlighted regulatory costs as one of the most significant barriers to affordability, noting that these costs increased roughly 40% between 2021 and 2026. 

Iowa and Cedar Rapids Outlook

While some Sun Belt markets are experiencing slowing construction activity, Midwest markets have become relative bright spots. Population growth in both the Iowa City MSA and Cedar Rapids MSA has outpaced overall Iowa growth, supporting continued housing demand. 

Locally:

• Iowa City home prices have increased 41% since the pandemic.
• Cedar Rapids home prices have increased 45%.
• Iowa statewide home prices are up 48%.
• The U.S. average increase is 58%. 

Encouragingly, 2026 permit activity remains positive:

• Cedar Rapids single-family permits are up 18% year-to-date.
• Iowa City permits are up 5%.
• Iowa statewide permits are up 1%. 

Dietz noted that many major Southern housing markets are seeing declines in permit activity, while Midwest markets are outperforming and attracting investment due to their relative affordability and favorable business conditions. 

Construction Forecast

Nationally, Dietz expects:

• Single-family housing starts to decline 4% in 2026 and remain essentially flat in 2027.
• Multifamily construction to increase slightly in 2026 before declining in 2027 and 2028.
• Remodeling activity to remain stable in 2026 and grow modestly thereafter. 

He identified remodeling as one of the industry's strongest long-term opportunities, particularly in the Midwest, because of aging housing stock and an aging population. Remodeling spending is expected to grow more than 30% over the next decade. 

Long-Term Outlook

Dietz remains cautiously optimistic about housing demand through the remainder of the 2020s, driven by the large Millennial generation continuing to form households and purchase homes. However, he warned that demographic changes become less favorable in the 2030s as smaller generations follow Millennials into prime homebuying years. 

His overall message was that while the housing industry faces significant near-term challenges from interest rates, policy uncertainty, labor shortages, and construction costs, long-term fundamentals remain positive. Productivity gains, continued household formation, Midwest population growth, and remodeling demand should provide opportunities for builders who can successfully navigate the current environment. 

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