September 17, 2026

Housing starts declined 2.6% in August to 1,275 thousand after having fallen 9.0% in July.  Starts are very volatile from month to month, but they clearly remain at roughly the same very low level where they have been since the beginning of the year.

Homebuilder confidence remains low.  Builders are being cautious in part because tariffs and partly because a sharp increase in oil prices has boosted their cost of materials, and the increase in mortgage rates from 6.0% at the beginning of the year to 6.9%, 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 6.5% 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 next year a median-income earning family will have 25% 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 but it is rising steadily.  Current owners have been unwilling to trade a 3.0-3.5% mortgage rate for a 6.9% one.  But that view should change slowly over time.  Eventually people have to move.

Building permits — which are less volatile than starts — fell 2.7% in August to 1,394 thousand after having risen 4.3% in July.   With permits averaging about 1,400 thousand, starts should be at roughly that same pace.

Our best guess is that starts will be around 1,370 thousand by the end of this year and climb to 1,490 thousand by the end of 2027.

We expect 3.5% growth in the third quarter of 2026 and 2.4% GDP growth for the entire year.  Look for GDP growth of 2.8% in 2027.

Stephen Slifer

NumberNomics

Charleston, S.C.