Last year was not a particularly good one for home builders who faced numerous headwinds. But even as those hurdles persist, their trade association is projecting modest gains this year and next.
Housing starts for 2025 came in at 1.36 million, down 0.6% from the 1.37 million total in 2024, the National Association of Home Builders (NAHB) said, with single-family starts dipping 6.9% to 943,000. Multifamily starts ended the year up 17.4% from 2024.
For this year, NAHB Chief Economist Robert Dietz is calling for “slim” single-family construction growth while the multifamily sector should slide both in 2026 and 2027.
Dietz is projecting that single-family starts will gain back last year’s loss and then some. He expects detached starts to rise 1% this year to 940,000, and then by 5% to 984,000 next year.
To help would-be buyers overcome affordability issues, many builders are turning to townhouse construction. Dietz expects that trend to continue, as townhouses currently account for 18% of all starts.
With affordability a widespread problem, NAHB’s “priced-out” estimates show that nearly two-thirds of residents in 39 states and the District of Columbia, are priced out of the median-priced new home market. This indicates a significant disconnect between higher new home prices, elevated mortgage rates, and household incomes.
New Hampshire stands out as the state with the highest share of households — 83.4% — who are unable to afford the state’s median new home price of $677,982. Even in states with relatively lower median new home prices, affordability remains a major concern. In Mississippi, where the median home price is $266,837, nearly two-thirds — 61.1% — of households still find these new homes out of reach.
Affordability isn’t the only challenge builders and their customers will face. They must also contend with uncertainty over economic policy, rising construction costs, and a softening labor market. But an anticipated modest reduction of mortgage rates should help somewhat offset those problems and support the market, Dietz said at the NAHB’s annual convention in Orlando.
“The housing outlook is one of cautious optimism,” the economist said, noting that “builders and buyers alike should benefit from anticipated fiscal and monetary easing that will moderate housing finance costs and mortgage rates.”
Still, builders will continue to face “persistent” labor shortages, with the government reporting nearly 300,000 job openings in the construction industry in December. NAHB estimates that the residential construction sector will need to add roughly 740,000 workers a year just to keep pace with the industry’s growth, retirements, and departures.
At the same time, residential building material prices continue to experience elevated growth, as price growth has been above 3% since June 2025. This, despite continued weakness in the residential market.
One “silver lining” can be found in interest rates, as NAHB projects mortgage rates to remain slightly above 6% this year, and unevenly trend slightly lower. It projects the Federal Reserve will make two 25 basis point rate cuts this year to reach a terminal federal funds rate of 3.25% by the end of 2026.
Even so, buyers remain anxious as they wrestle with their own concerns.
“Consumers are dealing with a host of issues, including policy uncertainty, home prices, job security, and rising home maintenance and insurance costs,” Zonda Chief Economist Ali Wolf said on a convention panel.
Wolf said the one thing that would quell buyers’ nerves would be stability.
“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 easily enough. 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.”
Meanwhile, the one sector of the overall housing market that “continues to thrive” is remodeling, which the NAHB expects to increase by 3% this year, and by 2% more in 2027.
“The surge in home equity has allowed more homeowners to finance remodeling projects that meet their needs,” said Dietz, who expects “robust” long-term remodeling growth. “Overall remodeling expenditures will be 19% higher in 2030, and 32% higher by 2035.”
