Many are forecasting an upturn in volume for the housing market this year, for both new and existing homes, along with generally rising home prices. Maybe, even probably, they’ll be right. I hope they are right.
My colleagues call me a killjoy when I share my forecast, and more important, my decision-making process for using this forecast information. Let’s briefly explore the basic, underlying forces and consider what decisions make sense in this environment.
Housing transactions require households, and households are made up of people. For the first time, the U.S. may have lost population in 2025 and is on track to do the same in 2026 because 2 to 4 million foreign-born residents and their families are leaving the country. In 4 to 6 years, immigration will be the only source of population and household growth because by then, the number of Americans dying every year will exceed the number being born.
This has put pressure on rental occupancies and rates, which has put pressure on home prices and inventory. All these things will get steadily and unevenly worse in 2026 compared to 2025. Some submarkets (states, counties, cities, zip codes, census tracts and neighborhoods) will continue to do well. More submarkets will get worse in 2026 compared to 2025.
There is hope that lower interest rates will improve the housing market. Of course that is true, but how low will rates go? How much extra demand will lower rates generate?
Only four things keep the national home building market from collapsing: reasonable interest rates, a low unemployment rate, a high stock market, and enough people aged 35 to 65 whose household has more than $100,000 of annual income and who want to buy a home (especially those who want a vacation home or a nicer home).
You may be laughing at me when I say today’s 6.00% to 6.50% mortgage interest rates are reasonable. Look beyond the last five years. If rates drop to 5.50% to 6.00% this year and employment remains steady, that will improve new home market volume about 10% to 15% and there will probably be 5% to 10% more existing home transactions, too. This is the scenario that most forecasters are expecting.
If the unemployment rate accelerates, that will bring long-term interest rates and mortgage rates down, maybe below 5%, something we’ve been hoping for to improve affordability. The problem overwhelming this is that more people will be unemployed and even more will be concerned about their employment, so the inventory of homes for sale will rise while the demand for buying homes will drop. This will cause the volume of production and existing home sales to fall; even worse, those home prices will fall fast.
If the stock market falls, those who buy vacation, luxury, and custom homes will hold off. If it stays down very long, some of the people who own more than half the homes (those 55 or older) will list and sell their rental and vacation homes that are negatively cash flowing. This will further increase the inventory of homes for sale and reduce the demand for higher-priced homes.
Your guess is as good (or better) than the economic and financial experts about whether unemployment will rise or the stock market will fall in 2026. In the meantime, pay even more attention to:
- The age of the people who are buying your homes, your competitors’ homes, and the existing homes in your submarkets (state, county, city, town, zip code, census tract or neighborhood) where you build.
- Where those people come from.
- Why those people buy from you, your competitors, and the existing homeowners in your markets.
- Why people are moving from the existing homes and higher-end rental projects in your market area (you may be able to entice some of them to stay and buy from you).
If you are in the rental market, these changes (a rising supply of homes on the market, a falling demand for buying homes, falling mortgage and other interest rates, and a falling stock market) will improve occupancy rates, particularly for nicer rental homes, although rental rates will not increase and may decrease. You’ll also be able to refinance at a more reasonable rate.
To stay ahead of changing economic conditions, develop business plans for each scenario, including the specific actions you will take. Review and adjust these plans quarterly.
Shinn Group is here to help. In addition to our robust management training curriculum, we offer customized consulting and coaching packages designed to help home builders thrive during economic uncertainty, grow and organize their businesses and gain control of costs and improve profitability. Contact us at 720-509-8000 or info@theshinngroup.com for details.
Jim Weigel is a senior consultant at Shinn Group. He specializes in advising home builders around the country on management systems, operational efficiency, finance, growth strategy, and ownership transitions.
