Fall 2025 Construction Insurance Forecast
Each quarter, US Assure President Alan Ferguson joins us in the studio to discuss key factors contributing to changes in the construction industry, a forecast for the coming months, and how it will impact your business opportunities.
Read the Video Transcript:
Welcome to the Builders Risk Outlook.
Each installment this year has highlighted what we believe will signal a shift toward growth in residential construction. But, sluggish interest rate cuts have stalled progress. Essentially, we’ve been at the starting line waiting for something to kickstart the momentum.
Now, based on the latest update from the Fed, our starter may have finally arrived. For the first time since December 2024, the Fed reduced the interest rate by 25 basis points. And, they’re projecting two more cuts before year’s end.
In any race, everything hinges on the call “Ready, Set, Go.” This cut and the promise of more could be the signal that the race to recovery is about to begin.
The past few months have brought a volatile economic climate. New home starts remained relatively flat from March, dipped in June to an annualized number of 925,000, rebounded in July to almost 970,000, then dropped again in August to 890,000 — well below June’s level.
Tariffs and uncertainty about their impact, pesky inflation and an overall dip in builder confidence — all of which have been exacerbated by painfully slow interest rate changes — have contributed to this instability.
Still, there is good news. Some underlying fundamentals suggest a jump in construction activity is imminent.
According to Realtor.com, new home construction in 2024 outpaced household formation for the first time since 2016. Despite this progress, the housing gap still sits at 3.8 million, proving demand remains strong.
At 2024’s pace, it would take seven and a half years to close the housing gap nationally. Regionally, it’s about three years in the South and a shocking forty-one years in the Midwest.
Of course, higher interest rates have hit younger first-time home buyers hardest. With the compounded effect of rising home prices and the drop in available inventory, homeownership has been nearly unattainable for many. Around 1.6 million expected Gen Z and millennial households did not form in 2024, primarily due to the lack of affordable housing.
It’s estimated that roughly six million households that are currently priced out could afford a home if mortgage rates dropped to six percent. Experts believe an overall drop to six percent would see home sales increase by as much as fifteen percent. While this isn’t a common outcome to rate cuts, after three years of high rates and super-low sales, it may just happen.
If builders continue lowering costs to compete with existing inventory and rates continue to fall, young first-time buyers may finally have an opportunity to afford a home.
We’re only at the starting line in this race. But, if the Fed follows through with additional interest rate cuts, we’re optimistic that by year’s end we’ll be off and running toward a strong residential construction period in 2026.
This is intended as a general description of certain types of insurance and services available to qualified customers. Any description of policy provisions is meant to give a broad overview of coverages and does not revise or amend a policy. Refer to the policy coverage form for a complete representation of the scope of coverage, terms, conditions, exclusions and more. The policy is the contract that specifically and fully describes your coverage. Some products may not be available in all states and may only be offered on a non-admitted basis. Product availability is subject to change.
