Moving through 2026, the housing market will continue to face headwinds from consumer confidence challenges, a softening labor market, ongoing affordability challenges, and general economic uncertainty. However, a forecasted moderation in mortgage rates is likely to help offset some market challenges among rate-sensitive buyers in the entry-level market.
Taken together, the economic landscape and housing market conditions are “good, not great” heading into 2026, according to top economists during “The Outlook: 2026 Housing & Economic Forecast” at the 2026 International Builders Show (IBS) in Orlando.
“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,” said Robert Dietz, chief economist for the NAHB.
A Slow Market With Hesitant Buyers
2025 marked the lowest new-home sales in three years amid a tricky market plagued by stronger competition, tighter builder margins, heavier price cuts and financing incentives, and elevated new-home supply.
The pace of single-family starts continues to decline. However, this decline is helping the pace of starts and closings better align after a disjointed post-pandemic period. The pace of closings now exceed starts, according to Zonda chief economist Ali Wolf.
“If you think about builder responsiveness, we are dealing with the fact that overall housing starts are down 12% compared to the prior year,” Wolf said. “But builders are being very cautious and very aware of the market backdrop, which is important when you think about how long the market will feel uncomfortable. The good news is we are preventing any blatant and longstanding buildup of supply.”
Builders remain cautious entering 2026, noting the market is still slow and incentives are still necessary, but many have adjusted their expectations relative to the end of 2025.
“In November, 50% of builders said the market was slow and it was causing concern. In January, it was only 20% of builders,” Wolf said. “On the flip side, 50% of builders were saying demand is on track with expected [in January]. Part of this is because rates have come down, part of this is because of the time of year, but a big part of this is because builders have lowered expectations. I wouldn’t say it’s been a really good start to the year, because when we specifically ask builders to describe the market, the number one word they will use is ‘slow.’”
A primary reason for the softness in the new-home market is consumer confidence challenges.
“Consumers are dealing with a host of issues, including policy uncertainty, home prices, job security, and rising home maintenance and insurance costs,” Wolf highlighted.
Lower interest rates have facilitated a moderate increase in purchasing power, though affordability remains constrained by elevated prices and high payment-to-income ratios required for homeownership. While it is difficult to identify a single variable that will cause consumers to feel more confident about the housing market, Wolf highlighted how stability is a key ingredient missing for today’s prospective buyers.
“Stability from policymakers, stability in the labor market so that people are confident that their job is safe, and they can find a new one easily,” Wolf said. “Stability that interest rates will stay steady and won’t move lower, which would keep buyers on the sidelines. And stability in home prices so that a home will be a steadily appreciating asset. These are the market conditions that will move hesitant buyers off the sidelines.”
Mortgage Rates and 2026 Projections
A silver lining in the housing market is the relative stabilization of 30-year fixed mortgage rates. Rates dropped to 6.2% following the announcement of $200 billion in mortgage-backed securities buybacks by Freddie Mae and Freddie Mac.
“Rates right now are a little bit above 6% and we expect them to be in the 6s range for the rest of 2026,” Dietz said. “I don’t think we will see a sustained period of time where mortgage interest rates begin with a 5 until 2027.”
New-home prices are down nearly 15% since the fall of 2022. NAHB data suggests due to incentives and smaller new homes the median price of new homes has dipped below existing homes. However, Dietz projects that the existing-home market may experience some of the same price discovery as the new-home market and resale prices could moderate or decline in 2026.
The NAHB is projecting single-family construction will expand marginally in 2026. The organization is calling for a 1.0% increase in single-family starts to 940,000 units; in 2027, the NAHB is projecting a 5% increase in starts to 984,000. Similarly, Zonda is projecting single-family starts and sales will increase with low single-digit growth in 2026.
While fewer spec homes meant single-family construction contracted in 2025, townhomes and custom homes gained market share. According to the NAHB, the share of townhome construction improved to a multidecade high of 18% last year.
Shift to a Buyer’s Market
Realtor.com chief economist Danielle Hale shared how the housing market is continuing its shift from a seller’s market. The cumulative housing months’ of supply is approximately 4.6, up 0.5 months from a year ago. While this does not suggest a shift to buyer’s market, Hale said it signals a more buyer friendly market.
Realtor.com is projecting existing-home prices to increase by 2.2%, existing-sales to increase by 1.7%, and resale inventory to increase by 8.9% in 2026.
“We foresee slight gains in affordability this year,” Hale said. “With modest existing home sales growth expected and price appreciation lower than the overall inflation rate. These factors, along with income growth and likely lower mortgage rates, will work together to improve affordability.
Economic Outlook
Despite the challenges in the market, and the slowing labor market in particular, Dietz and the NAHB rate the risk of an economic recession as “low.” There is concern about the extent to which data center construction and AI-adjacent sectors are propping up economic growth, but the overall trend of economic growth remains healthy at 2.2%.
The labor market does remain a challenge, with job openings rates declining at the same time unemployment is increasing. Additionally, the labor-force participation rate continues to decline, which could have both demand and supply-side challenges to the housing market moving forward.
On the inflation front, shelter costs are running at a 3.6% annual rate and continue to outpace broader consumer prices. Overall inflation as measured by the Consumer Price Index (CPI) stands at 2.4%, still elevated above the Federal Reserve’s long-term target of 2%. After correctly forecasting three rate cuts in 2025 at last year’s IBS, Dietz shared NAHB’s 2026 forecast of two rate cuts in June and September.
With the housing sector receiving more attention from policymakers, Dietz highlighted how smart reform on permitting timelines, zoning, and regulatory costs can help the industry ease the overall housing shortage.
