March 12, 2026

Housing starts jumped 7.2% in January to 1,487 thousand after having climbed 4.8% in December and 4.1% in November.  This is the hird consecutive sizeable increase in starts.  The housing market seems to be showing some signs of turning upwards.

Homebuilder confidence remains low.  Builders are being cautious in part because tariffs are making the cost of their materials hard to estimate.  In addition,  sharp increases in prices and mortgage rates during the past several years have priced some potgential buyers out of the market, For that reason the majority of builders continue to deploy buyer incentives, including price cuts, but many prospective buyers 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 5.7% by the end of the year as inflation slows slightly and the Fed cuts rates one more time..  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 significanatly.  We believe that by the end of this year a median-income earning family will have 30% 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 6.0% one.  But that view should change slowly over time.

Building permits — which are less volatile than starts — declined 5.4% in January to 1,376 thousand after having risen 4.8% in December.   But given the bitter cold weather, ice, and snow in that month we expect permits to rebound in February and continue to climb as the year progresses.

Our best guess is that starts will be around 1,650 thousand by the end of this year.

We expecct 2.8% growth in the first quarter of 2026 and 2.8% GDP growth for the entire year.

Stephen Slifer

NumberNomics

Charleston, S.C.