What’s Next for the Housing Market
In Cambia Capital’s last housing market update, we outlined why market conditions were creating a favorable environment for housing developers. That outlook remains valid, though the months since have presented meaningful challenges. Despite these hurdles, the road ahead still holds more opportunities than risks for for-sale builders.
Key Challenges Facing Builders
Since the end of Q3 2024, builders have faced three primary challenges: rising costs, mortgage rate uncertainty, and labor shortages.
1. Rising Costs: Inflation has cooled to 3%, down from the highs of the previous 18 months, but remains above the Federal Reserve’s 2% target. Further complicating matters, new tariffs are poised to drive up costs. The National Association of Home Builders (NAHB) warns that 70% of the softwood lumber and gypsum imports—critical homebuilding materials—come from Canada and Mexico, both of which will soon face 25% tariffs. NAHB continues to push the administration for exemptions, but no relief has been secured yet.
2. Mortgage Rate Uncertainty: Mortgage rates have fluctuated dramatically, with 30-year fixed rates shifting more than 1% over just five months in 2024. This instability makes it difficult for buyers to assess their purchasing power, leading many to delay home purchases—and causing uncertainty for builders in turn. However, recent weeks have shown signs of stability, with the 30-year fixed rate holding just under 7% for over a month and experiencing minimal fluctuations. This steadiness is a positive signal for both buyers and sellers as the spring homebuying season nears.
3. Labor Shortages: The construction labor gap persists, with 250,000 unfilled positions in 2024—an improvement from prior years but still a significant challenge. "I still call it a crisis," says Ed Brady, CEO of the Home Builders Institute. "You can debate the magnitude of the crisis, but it's still bad." While advancements in construction technology and off-site building methods offer potential solutions, widespread adoption remains slow.
Opportunities Ahead
Despite these headwinds, builders have reason for optimism, driven by three fundamental market dynamics:
1. A Persistent Housing Shortage: The U.S. faces a severe housing deficit, with Zillow estimating in June 2024 that the country is 4.5 million homes short—an increase of 1 million homes from 2023. This ongoing supply-demand imbalance continues to favor builders, particularly those developing in high-demand regions.
2. Reduced Competition from Multifamily Development: Multifamily construction financing tightened considerably in 2024, leading to fewer new apartment projects in the pipeline. This is expected to reduce housing supply in the coming years, potentially driving more buyers toward single-family homes.
3. Political Momentum for Housing Expansion: Housing policy is gaining bipartisan traction. Both major political parties emphasized housing supply solutions during the 2024 election cycle, and zoning reform is emerging as a top issue for 2025. Cities and states are actively promoting density-friendly policies, making middle-housing asset types (e.g., townhomes, small-lot cottages, and low-rise multifamily) increasingly attractive development opportunities. NAHB chief economist Robert Dietz noted that policymakers have historically relied on demand-side solutions, which have often been ineffective or even counterproductive. The growing recognition that increasing housing supply is the key to improving affordability is a positive shift.
Cambia Capital’s Approach
At Cambia Capital, we partner with best-in-class developers—including certified sustainable housing builders—who are setting new industry standards. These developers go beyond code requirements to deliver third-party certified, higher-quality homes that command strong market demand and reduce risk on sale.
Investing in sustainable real estate isn’t just good for the environment—it’s a competitive advantage. As we look ahead to 2025 and beyond, Cambia Capital is actively seeking opportunities to work with top-tier developers to bring highly differentiated, lower-risk housing products to the market, with a particular focus on missing middle housing. By bridging the gap between single-family and multifamily housing, we unlock a high-demand, undercapitalized market with limited institutional competition and growing regulatory support—creating resilient, high-quality communities.
In a rapidly evolving market, mitigating risk while capitalizing on competitive advantages is smart investing. Sustainability, quality, and strategic positioning drive long-term value, and we are committed to leveraging these strengths.
About Cambia Capital
Cambia Capital is a leading sustainable real estate investment firm committed to accelerating the built environment’s transition to a net-zero economy. By partnering with best-in-class developers and targeting high-demand housing markets, Cambia Capital delivers sustainable real estate that aligns with investors’ financial goals while meeting the evolving needs of communities across the Pacific Northwest and beyond.
For further information, please contact:
info@cambiacap.com