WASHINGTON—On a recent National Association of Home Builders’ podcast, NAHB Chief Economist Dr. Robert Dietz discussed the latest economic forecasts and how they have changed this year due to geopolitical turmoil.

Mr. Dietz began the discussion by noting how the stock market’s performance has far outpaced consumer sentiment on the ground. “It’s a really unbalanced economy right now,” said Mr. Dietz. “And I think the bond market is reflecting that.”

Mr. Dietz said that while the economy has a lot of investment opportunities right now, most are tied to high-tech sectors, like data center hyperscalers facilitating AI projects. These huge investment opportunities are competing with bonds, sending Treasury bond prices soaring and taking mortgage rates along for the ride.

“We also have high inflation right now and that’s all tied to the Iran war,” said Dietz. “There’s just a lot of policy items that are keeping the market in this state of limbo and the result is higher interest rates.” He noted that unforeseen policy moves, like starting a war with Iran, threw off housing forecasts for 2026 and their impact may stay through 2027.

“Unfortunately, I think this 7.5% range [for mortgage rates] is the new normal until we get a resolution on these geopolitical factors,” said Mr. Dietz. However, he noted the economy is still expanding and the risk of recession in 2027 is low. Still, he is forecasting a 35% chance of a broad pullback next year.