While homebuilder sentiment remains subdued after an uneventful 12 months, Robert Dietz, Chief Economist National Association of Home Buildershe offered “safeguarded hope” in his adoption of complex economic measures affecting the markets.
In other words, the worst may be over, but don’t expect the switch to flip. Not yet, anyway.
Still plagued by economic uncertainty and an affordability gap for homebuyers, Dietz sees positive early signs and indications that new home sales may emerge from foreclosures and reach an early recovery by the end of 2026. There is evidence, Dietz noted, that affordability pressures have eased and caused the improvement in housing costs to begin and slow the development of housing costs. a need that awaits in the dim, not too distant future.
Dietz was joined by fellow economist Danielle Hale Realtor.com and Ali Wolf of Hatein the 2026 outlook session at the NAHB International Builders Show on Tuesday, we shared insights on the state of the economy and the housing market.
A mixed macroeconomic perspective
Dietz described the macroeconomic outlook as positive, but not positive. The annual GDP growth rate, he noted, is good at about 2.2%, but lower than the long-term average growth rate of 3.0%. Positively, the three to four year outlook includes a low risk of recession of 30%.
Economic growth, of course, varies greatly by country and region. The job market in Vermont, Massachusetts, Hawaii and the District of Columbia has not recovered from pre-2020 high levels. In contrast, Idaho, Utah, Texas, Florida and the Carolinas have experienced strong job growth over the past six years.
Dietz explained that productivity growth is an indicator we should pay more attention to, given that household income growth is closely linked to productivity. As of mid-2021, income growth has outpaced population growth and that trend is continuing.
“One of the themes of the 2026 vision is productivity growth,” he said. “Productivity growth is about as close as we can get in economics to a free lunch. It can raise wages, it can put pressure on inflation.”
Home sales are down
As of the second week of February, the average 30-year mortgage is just over 6.0%. Dietz predicts the Federal Reserve will cut rates in June and September. However, this will likely have little impact on borrowers’ loan rates in 2026. Instead, Dietz expects a sustained period with mortgage rates consistently below 6.0% through 2027, but not this year.
Dietz predicts that housing starts, which fell by 7.8% last year last October, will grow by 1% in 2026. As mortgage rates are expected to track in 2027, NAHB predicts 5% growth early next year, indicating the release of pent-up demand and the possibility of brighter days ahead for homebuilders.
Custom home building, whose customers tend to be older, wealthier, and motivated to live in their “dream home,” was the most effective home building segment in 2025, and this trend is likely to continue for the foreseeable future. In stark contrast, the entry-level segment, which is the most sensitive to credit quality and affordability pressures, remains extremely difficult.
As the affordability gap widens, townhomes are expected to make up the majority of new housing. The townhome share has grown slightly since the COVID pandemic, now at 18% of the market, and could soon cover 20%, which shows the evolution of the national product.
Affordability – in monthly payments – makes a small profit
Economists have seen at least some serious signs that affordability is improving, even though a large percentage of Americans are sold out of the housing market. The average home value was 4.9 times higher than the median household income in Q3 2025, which is still higher than the Pre-Great Recession peak of 4.83 in 2005.
However, the ratio has tracked down slightly from a peak of 5.35 in Q2 2022.
Hale predicts continued improvement, especially in monthly payments through 2026, a welcome sign for builders who rely on profits and price reductions to move inventory over the long term. Mortgage rates will remain stable or fall, rates will rise but not by much and incomes will improve.
Based on these metrics, Hale predicts a 1.3% decline in the average monthly payment by 2026.
“It’s not a big drop, but it’s the first drop we’ve seen since 2020, so this is good news for consumers. It’s not good news, but it’s good news for consumers,” he said.
Homebuilder confidence remains subdued
Although the indefinite future may show signs of better days to come, i National Association of Home Builders (NAHB)/Wells Fargo The Housing Market Index (HMI)’s builder confidence gauge remains negative this month with a reading of 36, down one point from January and down six points year-on-year.
The survey, released on Tuesday, reported that 36% of builders reduced the price in February, down from 40% in January. However, the average price reduction remained unchanged at 6%. The share of builders reporting using sales incentives was 65%, representing the 11th month in a row that more than 60% of builders reported using sales incentives.
Geographically, builder confidence is highest in the Northeast (42) and Midwest (41), and lowest in the South (35) and West (34). Markets in the South and West, despite strong population growth, are more likely to experience an oversupply of new homes, resulting in negative price pressures and higher profits. Austin, Tampa, Miami, Orlando and Dallas experienced the largest declines in home prices last year.
