The near-term outlook for home building is difficult, even as the long-term supply story remains favorable. Single-family construction weakened in 2025, with starts falling 6.9% to 943,000 units and 2026 data points to another soft year for the industry. Through May, single-family starts were down 6.3% on a year-to-date basis. The three-month moving average of 933,000 homes built points to a market still operating below the pace needed to close the nation’s housing gap.
Builder sentiment confirms these conditions. The NAHB/Wells Fargo Housing Market Index (HMI) fell to 35 in June, marking the 14th consecutive month below 40, a period of weakness not seen since the 2011-2012 foreclosure crisis. The HMI details are consistent with a market in which buyers remain rate-sensitive and builders are managing through sales strategies: 35% of builders reported price cuts in June and 62% reported using sales incentives. The HMI components show the core problem, with current sales conditions at 38, expectations at 45 and buyer traffic at 25.
Given the weaker starts data through May and the increase in mortgage rates during June, downside risk has increased for 2026. Macro uncertainty, led by the Iran war and higher energy costs, has hurt consumer confidence and kept inflation elevated. Under these circumstances, single-family starts are now forecast to decline.
This should be followed by a better but still constrained 2027 provided rates ease, buyer confidence improves and builders gain relief from policymakers and market forces on input costs, labor availability and regulatory burdens.
There are, however, notable bright spots. Custom home building has outperformed the broader single-family market. Over the last year, custom home starts totaled 188,000 homes, up 3% from the prior four-quarter period.
Remodeling is another area of industry strength. NAHB’s 2026 outlook expects real remodeling activity to rise 3% this year and 2% in 2027, supported by home equity, an aging housing stock and demand for aging-in-place improvements. Over the next decade, NAHB forecasts the remodeling sector to expand by more than 30%.
The Midwest is also a notable bright spot. While national conditions are soft, Census data show that single-family starts in the Midwest held steady year to date while the Northeast, South and West posted declines. Midwest permits were also 2.4% higher year to date.
This suggests that relatively attainable markets can still support construction activity when supply conditions, land costs and local regulatory environments are less binding.
The affordability problem is a supply problem. The central housing market challenge remains unchanged: the nation is structurally short of housing. NAHB’s revised estimate indicates that approximately 1.2 million additional housing units are needed to restore vacancy rates to historical norms.
This is why the current short-run downturn should not be confused with a lack of need. Demand has been constrained by affordability, not eliminated. Households still need shelter, household formations continue, vacancy rates remain tight and the for-sale market remains undersupplied. The binding constraint is the cost and feasibility of producing attainable homes at scale.
The latest regulatory cost evidence makes this point clear. NAHB’s 2026 study finds that government regulation, taxes, fees and other costs account for $131,734, or 26.4%, of the final price of a new single-family home built for sale. That total includes $46,795 embedded in finished-lot costs and $84,939 imposed during construction. The current estimate is more than 40% higher than the 2021 estimate of $93,871 and more than double the 2011 estimate.
These costs matter because they reduce production at the margin. A $130,000-plus regulatory load is not an abstraction; it prices out households, limits entry-level construction, raises financing needs and makes smaller projects harder to pencil. It also underscores the need for policy reform. If the ultimate solution to the housing affordability crisis is to build more attainable single-family and multifamily housing, then the policy goal must be to bend the cost curve lower and make the development process more predictable.
The market will remain challenging through the remainder of 2026. But the long-run economics are clear. The United States has a housing deficit and reducing that deficit requires more production. With effective advocacy and a unified home building and residential construction federation, the home building industry can move from cyclical caution to supply-side expansion in 2027 and beyond.
By Robert Dietz . He is the Chief Economist and Senior Vice President for Economics and Housing Policy for the National Association of Home Builders (NAHB). He can be reached at rdietz@nahb.org.
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