In the second session of the Housing Affordability Summit, Dr. Roger Tutterow, Professor of Economics at Kennesaw State University, delivered a stark economic outlook and its implications for housing affordability. His message: while demand remains strong, rising costs and policy uncertainty are creating economic headwinds and a perfect storm that’s pricing out homebuyers—and stifling broader economic growth.
Consumer Sentiment and Economic Anxiety
Tutterow began by highlighting just how grim consumer confidence has become. Despite surviving the pandemic and skirting a recession in 2023, Americans are now more pessimistic than at almost any point in recent history. In fact, consumer sentiment is now as low as it was during the Great Recession. He attributed this to fears that ongoing trade policies—particularly tariffs—will reignite inflation.
Importantly, this uncertainty is hitting lower-income households harder, as higher earners remain relatively more confident about their financial futures. But widespread economic anxiety means even well-positioned consumers are hesitant to make big purchases, including homes.
Inflation, Tariffs and the Vanishing Pandemic Cushion
Although the U.S. avoided a recession in 2023 thanks to an influx of savings during the pandemic, that financial cushion is now gone. According to Tutterow, leading economic indicators have dropped 2% in the last six months—an annualized rate of 3.95%—leaving the economy more vulnerable than ever to a downturn.
Pandemic-era wage growth also fell short of inflation. While employment costs rose between 2020 and 2022, prices increased even faster, eroding real income. Meanwhile, construction materials surged 47% from January 2020 to their 2022 peak and remain about one-third more expensive than pre-pandemic levels.
No Cheap Way Out for Builders
With rising costs across the board—land, labor, materials—builders simply can’t “engineer” lower-priced homes. “It makes more financial sense today to build higher price points,” Tutterow stated. The math is undeniable: even if builders want to provide affordable homes, the economics just don’t work without systemic changes.
To illustrate the challenge, he noted that the average monthly mortgage payment on a median-priced home is up 120% since 2020, thanks to both rising home prices and elevated interest rates.
Interest Rates: A New Normal
Tutterow also urged attendees to adjust expectations around interest rates. “We’re not going back to 3.25%,” he warned. After three cuts in 2024, the prime rate is projected to finish 2025 at 7%, with only modest additional cuts expected in the near term. High rates are now part of the economic landscape—and they’re putting extra pressure on already strained buyers and builders alike.
The Broader Implications
Beyond individual affordability challenges, Tutterow made it clear that the housing crisis is also an economic development crisis. Companies cannot recruit or retain workers if those workers can’t afford to live near their jobs. Housing, he said, is now a central factor in regional competitiveness.
Policy Solutions Must Address the Cost of Development
Tutterow advocated for streamlining local government processes to help reduce the cost of land development. Permitting delays, regulatory hurdles, and inconsistent approval timelines all add to the final price of homes—and these are variables that policymakers can control more directly than inflation or interest rates.
Stay tuned for Part 3, Housing Affordability: Policy and Tax Uncertainty, where policy experts from the National Association of Home Builders share strategies to overcome regulatory barriers and address the systemic causes of America’s housing shortage. And make sure to read Part 1, Housing Affordability: John Hunt Challenges Zoning Norms.