The 2025 Forecast: Top Takeaways

Editor’s Note: The following is based on forecast presentations from Dodge Construction Network’s 2025 Annual Outlook, ConstructConnect’s Fall 2024 Economic Outlook, Deloitte’s 2025 Engineering & Construction Industry Outlook, and Connor Lokar’s annual economic forecast keynote and Chris Beard’s economic presentation from GlassBuild America 2024. 

Last year presented several significant challenges for the construction industry, including persistent difficulties in attracting and retaining talent, ongoing supply chain disruptions fueled by geopolitical tensions and global economic uncertainties, higher interest rates, economic uncertainty, inflationary pressures, and shifting regulatory hurdles in response to natural disasters and evolving building codes and environmental regulations. 

Despite these hurdles, construction spending crossed $2 trillion and maintained a balanced trajectory in the first half of 2024, according to a Deloitte analysis of data from the U.S. Census Bureau.  

Macroeconomic perspectives and projections 

U.S. economy holding its own 

“The reasons I feel most positive about 2025 really comes down to the fact that the Federal Reserve has started to cut rates,” says Richard Branch, chief economist, Dodge Data & Analytics. “We had the 50 basis point cut from the Fed in September. We had another 25 basis points last week [in November]. We think the Fed will go again in December. That’s a full 100 basis points of cuts this year. And we think there’s another 100 basis point cut through the course of 2025. By the end of 2025, the Fed’s funds rate will be at around 3%.” 

“We’re projecting inflation will be back at 3% to 5% as we move through the rest of the 2020s,” says Connor Lokar, senior forecaster, ITR Economics. “You need to make a plan in your business with how you’re going to deal with higher inflation and interest rates.” 

Affordability remains a “dark cloud” 

Chris Beard, director of building products research, John Burns Research and Consulting, sees great opportunity for the residential side, including normalizing inflation and appreciation of home sales. 

Housing affordability is a notable headwind and what Beard describes as the dark cloud looming over the industry. A reported 67% of production designers lower a product’s finish quality to reduce costs in a house. Growing volumes and declining revenue also reflect the industry solving for affordability. Ultimately, Beard says, “We may have reached the bottom in residential fenestration. We’re optimistic going into next year.” 

Lower rates to support growth in 2025 

With the three major categories—residential, nonresidential and infrastructure—in totality, Dodge forecasts total construction starts will rise 9% in 2025, to $1.3 trillion. 

“The thing we really need to look at is how lower rates are impacting the economy,” says Branch. “We need to process that there’s not going to be a massive uptick in construction or economic activity. It’s going to take probably about 125, maybe even 150 basis points, in cuts before we start seeing a more consistent growth in the economy the construction market.” 

The state of the transition 

“How is the election going to impact the forecast? Quite frankly, the truth of the matter is we just don’t know,” says Branch. “It’s a mix of positive and negative for the construction sector.” On the positive side, tax cuts could help the bottom line of construction tradespeople across the country. On the negative side, aggressive legislation on undocumented workers could possibly derail any growth potential in construction and manufacturing. 

Ken Simonson, chief economist, Associated General Contractors of America, predicts that lessened federal regulations anticipated under the incoming Trump administration could help some projects start sooner. At the same time, tariffs that President-elect Donald Trump has said he will institute have the potential to cause “a huge spike in prices” and could likely trigger a trade war, says Simonson. “We’d see a lot of projects canceled or at least scaled back.” 

A Trump presidency with a Republican-led Congress should positively impact the overall construction economy, according to Michael Guckes, chief economist, ConstructConnect, who agrees that a relaxed regulatory environment will promote construction activity, along with lower taxes and the opening of federal lands to development. “These changes could free the construction industry of the regulations that have historically held it back from faster growth,” Guckes says. 

Geopolitical conflicts and trade tensions 

Several geopolitical conflicts and tensions could impact the construction industry in 2025. From Middle East tensions impacting oil prices and transportation, agitation between the U.S. and China over trade policies that could disrupt supply chains and increase construction material costs, escalating trade tensions between the U.S. and the European Union, and the ongoing Ukraine-Russia and Israel-Hamas conflicts, many factors loom that could influence construction project timelines, budgets and availability of resources. 

• The 200% tariff imposed by the U.S in March 2023 on aluminum and derivative products from Russia is still in effect. 

• The Trump administration is calling for continued tariffs on Chinese products, between 60% and 100%. 

• A tax of between 10% and 25% on every product imported from all U.S. trading partners (including Mexico, Canada and the European Union) is also under consideration. 

Energy prices and geopolitical tensions are new risks added last year to the matrix that Dodge examines. Last year, Dodge predicted that geopolitical risk would remain intense, with tensions easing in the first three to six months of 2024. This year, Dodge is forecasting a “fairly stable geopolitical situation.” “That’s not saying things will get better or that they’re going to get worse,” says Branch. “Basically, there’s no change from the situation now.” 

The high impact of imported materials 

New tariffs on imported materials could lead to higher costs, says Guckes. “Certain proposed policies risk triggering higher construction costs,” he continues. “Tariffs on imported construction goods, which would raise the price of these goods, may lead to a second spell of construction inflation.” 

“Supplies have been pretty ample, and prices have come down a lot over the past year,” says Simonson. “But all that can be undone if President-elect Trump does impose across-the-board tariffs. When he did that for steel and aluminum—a 25% tariff on steel, 10% on aluminum—the domestic producers immediately matched those price increases. It’s not guaranteed that all prices will go up as much as the tariffs, but you can count on extensive increases.” 

Facing the talent shortage 

“The labor market has been solid up to this point. We can expect it to continue to be so.” —Richard Branch, DCN 

The construction industry continues to struggle with a significant talent shortage, with an average of 382,000 job openings each month from mid-year 2023 to 2024, marking the third consecutive year of increased vacancies.  

The industry is also experiencing a shift in skill requirements, with Deloitte projecting that 44% of infrastructure roles are expected to evolve in the next five years. The aging workforce is another concern; the National Center for Construction Education and Research projects the average age of trades workers will reach 46 by 2030. Younger generations, who have different expectations regarding work environments, are less interested in construction careers. In a 2024 workforce survey, the Associated General Contractors of America found that 50% of new construction industry hires fail to show up or quit shortly after starting. 

Concern among contractors 

“Quantity of qualified labor continues to be one of the greatest challenges that our industry is seeing and it’s not going to be easily solved, especially if we think about some of the proposed policies by the new administration coming into office next year,” says Guckes. “The construction workforce is very diversified; we benefit from people who come from all over the world. If, for any reason, that pipeline of people is pushed away, then we struggle with an additional supply issue. That means firms will struggle even more so to find enough qualified people.” 

The new administration’s immigration policy will also be extremely important, but Trump’s comments on the issue “have not been encouraging” for contractors, says Simonson. “Construction has always relied more heavily than other sectors on foreign-born workers. And if the border really gets shut down more, and if deportations are part of the mix, that’s going to hit construction even harder than other sectors.” 

Residential Construction 

“Single-family residential construction leads the economy into recovery, and it leads the economy into decline.” — Richard Branch 

“The big picture is that residential, single-family especially, is going to rebound. We still have a housing shortage that needs to be resolved, so we’re keen to see some growth in residential.” –Michael Guckes, chief economist, ConstructConnect 

• Dodge projects residential construction starts to increase 5% for single-family, and 11% for multifamily in 2025. 

• The current housing deficit sits at 1.5 million homes, according to data compiled by the National Association of Home Builders. 

• Dodge predicts that some 2.5 million households will be created in 2024 and 2025, with housing supply improving, but not quickly enough. 

• Property information provider CoreLogic predicts that home prices will continue to grow in 2025 (by 2.3%), but at a slightly slower rate than 2024. 

“What’s happening in the residential market is key to understanding what’s going to happen in the nonresidential space,” says Branch. “The demographics are fairly positive. We’re looking at 2.5 million new households, created between 2024 and 2025, so much faster than what we saw just prior to the pandemic. And a lot of this new household formation is taking place in ‘Sunbelt States’ where there’s a lot of pent-up household demand.” 

Single-family decelerating into 2025 

But this growth couldn’t come at a worse time, says Branch. “The housing market is woefully under-supplied; our measure of the shortage is around 1.2 to maybe 2.2 million units.” Upward pressure on housing prices will keep younger and less-affluent Americans from the single-family side of the residential market, forcing them into the multifamily market. 

“Single-family hit a trough back in early 2023 and has been rising steadily since then,” says Branch. “Single-family units this year-to-date through September are up 18%. We expect the fourth quarter for single-family housing to be essentially flat. New home sales are up around 3% year-to-date for 2024. It looks like construction is a bit ahead of the market, and that’s part of why we have single-family decelerating into 2025.” 

Multifamily starts accelerating into 2025 

Multifamily construction has been in a slump for the past 21 months, and completions for multifamily have been trending down since then, but Branch sees multifamily starts accelerating into 2025. “If you look at the multifamily vacancy rate, it’s gone up about 7,500 basis points over the last year,” says Branch. “This is still a fairly robust (and tight) market. Add on crowding out of the market and continued affordability issues on the single-family side, I would offer it can safely absorb more.” 

Retail recovery is expected to continue into 2025, bolstered by mixed-use developments that combine multifamily housing with retail spaces. Growth in multifamily projects, particularly those incorporating retail at ground level, is supporting the retail construction sector’s momentum moving forward. 

“Multifamily planning projects actually troughed back in November 2023 and have been trending higher since,” says Branch. “It takes somewhere around 17 months for a multifamily project to transit from planning to groundbreaking, so 17 months from November 2023 puts a trough in starts activity in early 2025. We think the planning data is telling us that there could be fairly aggressive growth in 2025 multifamily.” 

Housing recovery in small markets 

The other main storyline for residential construction concerns where it’s happening. “We’re seeing the strongest residential activity and growth in areas that are further away from dense, urban cores,” says Branch. “Affordability is key. People are moving further away to find housing they can afford, supported by a continued growth in hybrid work options.” 

Residential construction grew 17% in small metropolitan regions with a population of less than 250,000, compared to just 3% in medium metro areas, 4% in large fringe metro areas, and -3% in large central metro areas with populations greater than one million, according to Dodge. In rural or nonmetropolitan regions, growth was 18% for counties in micropolitan areas with a population of at least 10,000 but fewer than 50,000 people, and 17% in counties outside micropolitan statistical areas. 

Growth expected for residential remodeling 

After a mild pullback over the previous year, spending for improvements and repairs on owner-occupied homes is set to expand once again by the middle of next year, according to the Leading Indicator of Remodeling Activity by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. The LIRA projects that annual expenditures for home renovation and maintenance will grow by 1.2% through the third quarter of 2025. 

“A continued thaw in new home construction and sales of existing homes bodes well for an uptick in residential improvement and repairs next year,” says Carlos Martín, director, Remodeling Futures Program. “Additionally, stronger gains in home values and thus home equity levels should boost both discretionary and ‘need-to-do’ replacement projects for owners staying in place.” 

“Annual spending for home improvements and maintenance is projected to grow from $472 billion today to $477 billion through the third quarter of 2025,” says Abbe Will, associate director, Remodeling Futures Program. “A quick return to growth after a fairly modest downturn ultimately means that residential remodeling and repair expenditures are expected to approach past peak levels moving forward.” 

Beard, meanwhile, disagrees slightly, reporting that remodeling is in a stage of pent-up demand. Many homeowners are deferring big-ticket remodeling projects that require financing until financing becomes cheaper. Consumer sentiment, though rising, remains low compared to 2015 through 2019. “Growth won’t be great until sentiment improves,” he predicts. 

Potential trends to keep an eye on 

While builders are working to fix America’s critical housing shortage—with the number of new homes expected to top 1.1 million in 2025 (a 13.8% increase from 2024)—homebuyers can expect them to be built slightly smaller, and be more affordable, according to Realtor.com’s 2025 Housing Forecast. In 2022, the median new build was 2,128 square feet; that number fell to 1,965 square feet in 2024. Additionally, the number of new homes sold for less than $300,000 rose from 14% in September 2023 to 17% in September 2024.  

Builders are also embracing and exploring new technologies, like modular and 3D-printed homes, to lower costs and speed up construction. In the case of 3D-printed homes, while installing windows and doors can be more complex than traditional construction, 3D printing techniques now allow for the direct integration of openings for windows and doors during the printing process, which simplifies installation. For modular homes, installing windows and doors is generally easier than in traditional stick-built homes. Modular homes are built in a controlled factory environment, ensuring precise measurements and accurate openings for windows and doors. Plus, many modular homes come with pre-installed window and door frames. 

Finally, building for resilience and natural disaster mitigation should not be overlooked. While natural disasters can cause significant damage, they can also stimulate construction activity through rebuilding efforts. Windows, doors and roofs are often among the first components to be replaced following a severe weather event, with homeowners taking the opportunity to explore and upgrade their windows and doors to more energy-efficient or storm-resistant models with impact-resistant. Look for high-risk states such as California, Texas and Florida, as well as the Gulf Coast region, to drive growth in fenestration options that protect against heat, fire, storms and flooding. 

Nonresidential construction 

“Commercial construction is fairly coincident with overall economic activity,” says DCR’s Richard Branch. Here is an overview of the major nonresidential project forecasts. See the full commercial report on GlassMagazine.com. 

Commercial starts on the rise 

• For 2025, commercial construction starts in the U.S. are projected to increase and see modest gains, up 7% ($170 billion) in 2025. — Dodge 

• Spending on nonresidential buildings is projected to increase over 7% in 2024 but then slow to only 2% growth next year. — AIA 

• Nonresidential construction is coming off a strong 2023 and 2024 but is heading for a slowdown in 2025. — ITR Economics 

Retail starts on the road to recovery 

• Retail construction starts in the U.S. are projected to increase 17% ($24 billion) in 2025. — Dodge 

• Shopping-centered construction will be at 25.6% for 2025. — ConstructConnect 

Core office starts to weaken further in 2025 

• For 2025, core office starts in the U.S. are projected to drop 10%. — Dodge 

• While traditional office spending has been declining, spending on data centers has been rapidly increasing. U.S. Commerce Department figures peg data center spending as accounting for over 3% of the overall nonresidential building market. — AIA 

• A focus on artificial intelligence will boost data center construction in 2025, a projected increase of 24% ($35 billion). — Dodge 

Upgrade cycle for hotels began in 2024 

• Hotel construction starts in the U.S. are projected to increase 16% ($16 billion) in 2025. — Dodge 

• Hotel construction spending is forecast to grow 6.6% in 2025. — AIA 

• For hotels, solid rebounds (28.7%) are expected in 2025. — ConstructConnect 

• The Q3 2024 U.S. Hotel Construction Pipeline Trend Report reported an 11% increase in projects YOY, with projects scheduled to start construction in the next 12 months and projects in early planning up 17%. — Lodging Econometrics 

Institutional building starts to ease in 2025 

• For 2025, institutional construction starts in the U.S. are projected to ease and see modest gains, up 4% ($232 billion) in 2025. — Dodge 

• Institutional construction will see a more than 10% gain in 2024 before slowing to 4% in 2025. — AIA 

Health starts poised for growth 

• For 2025, healthcare construction spending in the U.S. is projected to see modest gains, up 11% ($51 billion) in 2025. — Dodge 

• Health care construction, which saw growth throughout the pandemic, is poised for a 7% gain in 2024, and an additional 4% next year. — AIA 

• Publicly funded healthcare projects may not see a softening as soon, or as much, as privately funded projects; however, the market should come back around in 2026. — Connor Lokar 

• Hospitals and clinics (6.4%), and outpatient surgery and imaging centers as well as medical offices (13.6%) are expected to have a strong showing in 2025. — ConstructConnect 

Education starts trending up, lab projects slipping 

• For 2025, education construction spending is projected to modestly increase 8% ($96 billion). — Dodge 

• Much of the projected growth in the overall institutional sector will be generated by the education market, an increase of 4.4% in 2024. — AIA 

• Publicly funded education projects may not see a softening as soon, or as much, as privately funded projects; however, the market should come back around in 2026. — Connor Lokar 

• For education, a soft rise (0.5%) is expected in 2025. — ConstructConnect