LBM Executive Examines Construction Supply Outlook for 2026

Once again, it’s the season when all the experts tie a big, red bow on last year, then forecast what’s coming in the year ahead. Some see it as a competition to see who can make the most jaw-dropping predictions. Sometimes they’re even accurate, and if so, that’s just icing on the cake.

Wall Street gurus think we’re in for “a new bull market” triggered by lower central bank rates, the bouquet of tax cuts in the One Big Beautiful Bill, and, of course, the AI revolution.

“The boldest stock market calls for 2026 are starting to hit Wall Street,” reports Yahoo Finance, “and some of them include a run to 8,000 for the S&P 500 (just north of 6,800 right now) as the AI boom continues reshaping the economy and financial markets.”

Another AI-driven stock market boom would be a big deal. But it’s small ball compared with what tech pundits say is just around the corner. “In 2026, AI will manage entire workflows once controlled by humans,” says Forbes. ”Artificial intelligence has become the force behind nearly everything. It is reshaping how companies operate, how workers perform, and how economies compete.”

That’s a bigger deal. To top it, you’d need to turn to the most famous prognosticator of all. Back in the 16th century, the French astrologer Nostradamus predicted that 2026 would bring “rivers of blood, a plague of bees, and death by lightning,” says the New York Post.

Actually, we probably won’t see rivers of blood. It might well be that stock market gurus and tech pundits are a little ahead of themselves, too. Most observers think the more likely scenario for 2026 is Morgan Stanley’s less-than-audacious forecast for “moderate growth with a wide range of possibilities.”

In other words, 2026 may look a lot like 2025: GDP growth at “roughly a mid-2% pace,” (2025 averaged 2.4% through Q3), “normalized” inflation (latest was 2.7%), and crappy job growth (83,000 new jobs total from July through November) in the first half of the year.

Some worry about a recession, but “most experts see the economy expanding in 2026,” reports Quartz. One caveat: “Nearly all emphasize ‘uncertainty,’ urging businesses and investors to plan for multiple scenarios as if business planning ever called for anything else.”

That’s reassuring for the general economy. In housing, an instant replay of 2025 isn’t necessarily good news. But that may be what we’ll get.

As of October, annualized single-family starts were 874,000, down 7.8% YoY and right in line with analysts’ estimates for 2025. The consensus is that starts will fall another 2% to 3% this year, then start to pick up again in 2027.

Everyone agrees that building more houses would improve affordability. But only if builders build the right kinds of homes. According to NAHB, there is no shortage of move-up or luxury homes. We have nearly as many homes priced above $500,000 as we have households that can afford them.

The mismatch is under $300,000: 76.4 million households that can’t afford more than $300K, but only 37.4 million homes valued below that level.

It’s no secret that the reasons for the shortage are zoning laws and regulation. “We need small detached homes, duplexes, and townhomes,” says Scott Cox of SLC Advisors, a land development consultancy. “But our land-use regimes reject them outright or regulate them into impossibility.”

The problem is that land use is regulated locally, and while reforms are in the works, it’s a slow process that takes years to have an impact.

One thing the federal government can do is encourage states and local entities to enact policies that are housing-friendly. The ROAD to Housing Act, introduced in the Senate last summer, provided “a wide range of policy approaches to address housing affordability, including provisions to boost supply, modernize financing options, reduce regulatory barriers, promote economic mobility, and enhance program oversight and coordination.”

The Senate passed the bill with a bipartisan support, and sent it to the House as part of the National Defense Authorization Act. House Republicans stripped it out of the NDAA when they passed the final version last month, but that’s apparently not the last word. The chair of the House Committee on Financial Services says housing reform will be back on the table in 2026. 

Lower mortgage rates would also improve affordability, but consumer surveys by analysts indicate that rates need to fall to around 5.5% to draw home buyers off the sidelines. As of a month ago, nobody thought we’ll get there in 2026.

In early December, NAHB projected that 30-year mortgage rates would average 6.17% this year. Redfin and NAR said 6.3%. John Burns Research & Consulting projected 6.4% while the Mortgage Bankers Association said rates “could roll back up to 6.5%” in 2026.

Changes that might help the situation are in the works, though. Lenders are reportedly discussing portable mortgages that homeowners could take with them when they move, as well as assumable mortgages that could be transferred from seller to buyer. 

Then last week, President Trump directed Fannie Mae and Freddie Mac to invest  $200 billion in mortgage-backed securities on top of the $234 billion already in their portfolios. The following day, “the rate on a 30-year mortgage dropped 22 basis points to 5.99%” for the first time since 2023, reports CNBC.

The average rate was back above 6% a day later, but it demonstrated the influence the GSEs have on mortgage rates. Explains Bloomberg, “By keeping more loans on their books instead of selling them into the market, the GSEs shrink the supply of MBS available to investors, a shift that can compress yields and, in turn, lower lending rates.”

Whether that’s a good thing or not is another question. “Lower rates might not solve the issue of affordability for prospective home buyers,” says the Wall Street Journal. “Some agents have said that if rates dropped substantially and the supply of homes remained the same, home prices would likely rise.”

Most recently, President Trump called for a ban on institutional investors buying single-family homes. The theory is that Wall Street is taking homes off the market that would otherwise be available for families, and thereby driving up prices.

The problem with that notion is that institutional investors don’t own a big enough chunk of the housing inventory to make a difference. Investors who own 100+ properties only own about 1% of the single-family homes in the U.S., according to Ed Pinto, co-director of the American Enterprise Institute Housing Center.

“These companies are not pillaging homebuyers,” Pinto recently told Fortune. “It’s just the opposite. As more and more people can’t afford to buy single-family homes, they’re providing the option of living in one at lower cost by renting. That takes those people out of the purchase market, and hence can take pressure off prices.”

This administration isn’t exactly known for its ability to deal with complex issues. Standard operating procedure seems to be to just throw stuff against the wall and see what sticks.

But sometimes stuff actually does stick, and while it may be blind luck, the fact is that results are results. Maybe that’s what we need to get the housing market off the dime. Maybe not, too, but it looks like we’re going to find out this year.