Resilience in Housing-Linked Sectors Amid Broader Construction Slowdown

The U.S. construction industry in 2025 is marked by a stark divergence between residential and non-residential sectors. While non-residential spending faces headwinds, housing-linked segments are emerging as a critical counterbalance, offering strategic opportunities for investors navigating sector rotation. This analysis explores the dynamics driving this shift and identifies actionable investment avenues.

Non-Residential Construction: A Mixed Outlook

Non-residential construction spending is projected to grow by just 1.7% in 2025, with uneven performance across subsectors. Institutional facilities, including education and healthcare, are expected to lead with 6.1% growth, driven by public infrastructure investments like the Infrastructure Investment and Jobs Act (IIJA) [1]. Conversely, manufacturing and warehouse construction are contracting, with declines of 2.0% and 5.8%, respectively, as post-pandemic overbuilding and shifting supply chains reduce demand [1]. Data centers, however, remain a bright spot, with spending surging 33% in 2025, fueled by AI and cloud infrastructure demand [1].

This fragmentation underscores the sector’s vulnerability to macroeconomic shifts. While government-backed projects provide stability, private-sector segments like manufacturing and warehousing face structural challenges, including rising material costs and labor shortages [5].

Residential Construction: A Resilient Counterbalance

Residential construction, though constrained by high mortgage rates (6.7% as of late 2025 [7]), is showing signs of resilience. The sector’s performance is closely tied to interest rate trends, with Deloitte noting that declining rates could unlock demand in the coming quarters [2]. Labor shortages and supply chain bottlenecks persist, but regional markets are adapting. For instance, Idaho authorized 21.2 new housing units per 1,000 existing homes in 2024—double the national average—driven by population growth and favorable building conditions [8]. Similar activity is evident in Sun Belt hubs like Raleigh, Austin, and Dallas-Fort Worth [8].

The Federal Reserve’s easing cycle, though delayed in fully alleviating economic uncertainty, has improved affordability for developers and buyers. J.P. Morgan Research forecasts a modest 3% increase in home prices in 2025, supported by low inventory and a "lock-in" effect where homeowners remain in high-rate mortgages [7].

Strategic Investment Opportunities

Homebuilding and Housing-Related Services

Investors should prioritize builders with disciplined risk management and geographic diversification. NVR, a premium homebuilder with a mortgage subsidiary, and LGI Homes, targeting entry-level markets, are well-positioned to capitalize on demographic shifts and affordability gaps [9]. CareTrust REIT, specializing in senior housing, benefits from the aging population and long-term care demand [9].

Regional Real Estate Markets

The Sun Belt and Southeast continue to attract capital. Dallas-Fort Worth has replaced Nashville and Phoenix as a top real estate market, while Florida’s resurgence reflects its appeal as a low-tax, high-growth destination [4]. Industrial and retail sectors in these regions are thriving, with prime industrial vacancy rates at 6.8%—below pre-pandemic levels [6].

Attainable Rental Housing and Logistics

Affordable rental housing is gaining traction as student debt and high home prices push more households to rent. Modern logistics facilities, driven by e-commerce, also present opportunities, particularly in markets with robust infrastructure [10].

Conclusion

The construction industry’s bifurcation demands a strategic approach to sector rotation. While non-residential spending faces declines in volatile subsectors, residential construction and housing-linked services offer resilience and growth potential. Investors should focus on regions with strong demographic tailwinds, scalable developers, and sectors aligned with long-term trends like aging populations and digital infrastructure. By balancing exposure to institutional projects with residential and logistics opportunities, portfolios can navigate macroeconomic uncertainty while capitalizing on the housing sector’s enduring strength.

Source:
[1] AIA Consensus Construction Forecast, July 2025 [https://www.aia.org/resource-center/july-2025-consensus-construction-forecast]
[2] 2025 U.S. Construction Outlook, JLL [https://www.jll.com/en-us/insights/market-outlook/us-construction]
[3] 2025 Engineering and Construction Industry Outlook, Deloitte [https://www.deloitte.com/us/en/insights/industry/engineering-and-construction/engineering-and-construction-industry-outlook.html]
[4] Emerging Trends in Real Estate® 2025, PwC [https://www.pwc.com/us/en/industries/financial-services/asset-wealth-management/real-estate/emerging-trends-in-real-estate.html]
[5] 2025 U.S. Real Estate Market Outlook Midyear Review, CBRE [https://www.cbre.com/insights/reports/2025-us-real-estate-market-outlook-midyear-review]
[6] 2025 Commercial Real Estate Trends, JPMorganChase [https://www.jpmorgan.com/insights/real-estate/commercial-real-estate/commercial-real-estate-trends]
[7] The Outlook for the U.S. Housing Market in 2025, JPMorgan [https://www.jpmorgan.com/insights/global-research/real-estate/us-housing-market-outlook]
[8] U.S. Cities Building the Most New Housing, Construction Coverage [https://constructioncoverage.com/research/cities-investing-most-in-new-housing]
[9] Best Housing Stocks of 2025, The Motley Fool [https://www.fool.com/investing/stock-market/market-sectors/industrials/construction-stocks/housing-stocks/]
[10] Five Opportunities in U.S. Core Real Estate, CBREIM [https://www.cbreim.com/insights/articles/five-opportunities-in-us-core-real-estate]