Perc Pineda, PhD
Chief Economist, PLASTICS
May 27, 2025
Residential construction is a key market for plastics, which are essential for the production of products like pipes, insulation, siding, windows, and other homebuilding applications. According to the Plastics Industry Association’s 2024 Size and Impact Report, $6.7 billion of the $426.7 billion in final demand for single-family residential structures in 2023 was attributable to plastic content.
Understanding the trajectory of this market is critical for professionals across the entire plastics industry value chain. Recent data on new home sales, housing starts, and construction supplies manufacturing, offer important signals for strategic planning.
Navigating the Housing Market Cycles
New single-family home sales rose 10.9% in April to a seasonally adjusted annual rate (SAAR) of 743,000 units—the second consecutive monthly increase following a 2.6% gain in March. Sales were up 3.3% from a year earlier. Although these figures suggest some momentum, it is too early to conclude that the housing market has fully emerged from its cyclical low. Any recovery is likely to be gradual, given broader economic conditions and affordability challenges.
At their peak in October 2020, new home sales reached 1.03 million units (SAAR), driven by low borrowing costs and surging demand. By July 2022, sales had fallen nearly 50%, then rebounded 35% by mid-2023—though growth slowed again to just 1.0% year-over-year by July. As of March 2025, sales were up 6.0% from the prior year. These swings reflect a shift toward more normalized, if uneven, demand.
Choppy Housing Starts Underscore Supply-and-Demand Mismatch
Housing starts rose 1.6% in April, recovering from a 10.1% drop in March, but remained 1.7% below year-ago levels. Over the past 12 months, starts have fluctuated sharply—ranging from a 10.3% drop to a 16.9% rise—suggesting a lack of sustained upward momentum.
Meanwhile, new single-family home inventory dipped slightly by 0.6% in April, ending an eight-month stretch of modest growth, with November posting the strongest monthly increase at 1.7%. Despite April’s modest decline, inventory is up 8.6% year-over-year after a 9.0% gain in March and 8.1% over the past year—though still below the 10.0% growth recorded in August 2024.
Industrial and Strategic Signals for Plastics Producers
The Industrial Production Index for construction supplies manufacturing fell 1.0% in April after two consecutive monthly gains but remained 3.2% higher year-over-year—marking its fifth straight annual increase. Since April 2015, construction supplies manufacturing and plastic products manufacturing have shown a strong correlation (r = 0.81), underscoring the significant role of plastics in residential homebuilding. PLASTICS’ economic analysis shows that 65% of the variance in plastic products manufacturing can be explained by changes in construction supplies production. For industry executives, this specifically highlights the importance of tracking the right indicators—chief among them, the Industrial Production Index for construction supplies, which closely reflects trends in plastics production.
At the same time, with variability in new home construction, growth opportunities are emerging in the remodeling market. Remodeling activity typically strengthens when homeowners opt to upgrade rather than relocate, and housing starts and remodeling tend to move in opposite directions. This shift sustains demand for plastic-based products such as flooring, roofing membranes, insulation, PVC piping, and more. The U.S. remodeling market is estimated at $127 billion in revenue, offering a resilient source of demand, even as new construction fluctuates.
Housing Market Headwinds: Affordability, Rates, and Tariffs
Despite a 100-basis-point reduction in the federal funds rate, mortgage rates remain elevated due to the lag in transmission to lending markets. More importantly, while the Federal Reserve directly influences short-term rates, it only indirectly affects longer-term rates. The 10-year Treasury yield—a key benchmark for mortgage rates—trended upward throughout May, reflecting investor demand for higher returns on U.S. government debt. As a result, mortgage rates have yet to decline meaningfully. At the same time, the prospect of elevated tariffs on imported construction supplies adds further uncertainty. If implemented or expanded, such tariffs could drive up material costs and further dampen residential construction activity.
For the plastics industry, however, ample domestic production capacity offers an opportunity to meet demand that imports may no longer satisfy. This creates a strategic opening for industry executives to align operations, investments, and sales strategies with the evolving dynamics of residential construction—particularly as recovery scenarios take shape. The underlying demand for housing in the U.S. remains strong, and as borrowing costs eventually decrease and supply-side constraints ease, the housing market is likely to regain momentum.
