The housing market in 2026 is expected to face several ongoing challenges, including economic policy uncertainty, a softening labor market, and persistent affordability issues. However, economists at the International Builders’ Show in Orlando indicated that anticipated easing of financial conditions and a modest reduction in mortgage rates could help offset some of these difficulties.
Robert Dietz, chief economist for the National Association of Home Builders (NAHB), said, “The housing outlook in 2026 is one of cautious optimism as builders contend with rising material and labor prices and policy uncertainty, while builders and buyers alike should benefit from anticipated fiscal and monetary easing that will moderate housing finance costs and mortgage rates.”
Shelter costs are increasing at an annual rate of 3.6%, outpacing broader consumer prices. Dietz stated, “With a nationwide shortage of roughly 1.2 million housing units, the best way to ease the housing affordability crisis is for policymakers to remove barriers that are hindering builders from building more homes and apartments.”
Labor shortages remain a concern for builders. Government data showed nearly 300,000 job openings in construction as of December. NAHB estimates that about 740,000 workers per year need to be added to residential construction just to keep up with growth and workforce turnover.
Building material prices have also remained high since June 2025, despite weaker demand in new residential construction.
On interest rates, there has been some relief: following $200 billion in mortgage-backed securities buybacks by Fannie Mae and Freddie Mac, the average rate for a 30-year fixed mortgage dropped by 13 basis points to 6.2%. NAHB projects that rates will stay slightly above 6% this year but may trend lower if the Federal Reserve implements two planned rate cuts by year-end.
Dietz commented further: “A sustained sub-6% mortgage rate will likely wait until 2027.”
Looking ahead, NAHB forecasts only slight growth for single-family home construction—an increase of just 1% in starts during 2026—and continued gains for townhouse development. Multifamily starts are predicted to decline by 5% this year after reaching highs during the pandemic era due to tighter financing conditions.
One area showing resilience is home remodeling. The share of home improvement spending within residential construction rose from 33% in 2007 to 45% by late-2025. Remodeling activity is expected to grow by another three percent this year. Dietz noted: “The surge in home equity has allowed more home owners to finance remodeling projects that meet their needs, which include growth for aging-in-place remodeling projects.” He added that long-term projections show overall remodeling expenditures rising significantly through the next decade.
Existing home inventory has increased steadily—from a low supply level in recent years toward what experts describe as a balanced market range between four and six months’ supply. Danielle Hale, chief economist at Realtor.com said: “We expect this rate to rise to a 4.6-months’ pace in 2026, which is in line with a balanced market range of between four and six months.” She also noted inventory was up over fifteen percent last year with additional increases expected this year; median listing prices have declined slightly compared with last January.
Hale explained that while more homeowners now hold mortgages above six percent than below three percent—a shift known as the lock-in effect—most still benefit from relatively low rates compared with current offerings: “But the lock-in remains a market headwind, as roughly eighty percent of mortgages have a rate of six percent or lower.” She anticipates small improvements in affordability due partly to slower price appreciation relative to inflation alongside income growth.
Despite lower interest rates at the start of this year, many prospective buyers remain cautious about entering the market due largely to concerns about policy changes, job security and higher maintenance or insurance costs.
Ali Wolf, chief economist at Zonda remarked on generational trends among first-time buyers:
Gen Z and younger: Enthusiastic about homeownership but have very low ownership rates due mainly to affordability challenges.
Millennials: About half own homes; others continue renting while weighing cost-effectiveness.
Gen X: Many enjoy wealth but often retain older mortgages below current rates.
Baby boomers: Also relatively wealthy but less motivated or required to move.
Wolf summarized buyer sentiment saying it hinges on stability across multiple fronts: “Stability from policymakers,” she said. “Stability in the labor market so that people are confident that their job is safe and/or they can find a new one easy enough. Stability that interest rates will stay steady and won’t move lower… And stability in home prices so that a home will be a steadily appreciating asset.”
The National Association of Home Builders supports professionals throughout the residential construction industry by providing advocacy efforts focused on business success and housing growth; it offers education resources along with networking opportunities through its nationwide network official website. As described on its website, NAHB functions as both an advocate for policy change favoring greater affordability as well as an organizer recognizing excellence within residential design.
