June 16, 2026

Housing starts plunged 15.4% in May to 1,177 thousand after having declined 8.5% in April and having jumped 13.1% in March.  After rising sharply in March home sales took taken a dive in April and May.

Homebuilder confidence remains low.  Builders are being cautious in part because tariffs are and a sharp increase in oil prices has boosted their cost of their materials, and the increase in mortgage rates from 6.0% at the beginning of the year to 6.5%, has  priced some potential buyers out of the market, For that reason the majority of builders continue to deploy buyer incentives, including price cuts, but many prospective buyers still remain on the sidelines.

Despite the current lack of confidence amongst builders, there are reasons for optimism.

Housing affordability depends on three factors — mortgage rates, home prices, and consumer income.  Mortgage rates should edge lower to 6.2% by the end of the year as falling oil prices should bring down mortgage rates,.  Home prices should be roughly unchanged in the months ahead as weak demand pushes them lower but a shortage of homes for sale prevents any sizeable drop.  Consumer income will continue to climb as jobs are created and hourly earnings steadily climb.  As a result, housing affordability should increase.  We believe that by the end of this year a median-income earning family will have 20% more income than is required to purchase a median-priced home.  That should help.

Furthermore, potential home buyers today cannot find an adequate supply of existing homes to purchase.  The supply of existing homes on the market remains low.  The problem is that current owners have been unwilling to trade a 3.0-3.5% mortgage rate for a 6.5% one.  But that view should change slowly over time if mortgage rates decline somewhat.

Building permits — which are less volatile than starts — declined 0.7% in May to 1,413 thousand after having risen 4.4% in April.   With permits averaging about 1,400 thousand, starts should be at roughly that same pace.

Our best guess is that starts will be around 1,425 thousand by the end of this year.

We expect 3.0% growth in the second quarter of 2026 and 2.4% GDP growth for the entire year.

Stephen Slifer

NumberNomics

Charleston, S.C.