Last updated: May 21, 2026

Fannie Mae Cuts Single-Family Construction Forecast for 2026

Fannie Mae now expects just 947,000 single-family housing starts in 2026 — down 4.2% from its January estimate and 6.1% below 2025 levels — citing persistent affordability challenges and rising material costs in its March Economic and Housing Outlook.

The downgrade matters because new construction is one of the few levers that can actually fix the country’s housing shortage. And right now, that lever is pulling in the wrong direction.

Why Fannie Mae Cut the Forecast

Three factors drove the revision:

Mortgage rates stayed higher than expected. Fannie Mae’s January forecast assumed the 30-year fixed would average 6.0% for the first quarter of 2026. It actually averaged 6.2%, and the recent Iran-driven spike pushed it above 6.4%. Higher rates suppress buyer demand, which makes builders less willing to break ground on speculative projects.

Construction costs jumped. The Census Bureau’s price index for new single-family homes rose at a 12.6% annualized rate in the fourth quarter of 2025, driven partly by tariff-related increases on lumber, steel, and other building materials. Those costs eat into builder margins and make it harder to deliver homes at price points first-time buyers can afford.

Builder sentiment dropped. The NAHB/Wells Fargo Housing Market Index fell to 37 in March — the lowest reading since December 2023. Builder traffic, an indicator of future demand, hit its weakest level in 14 months. When builders don’t see buyers walking through model homes, they slow down starts.

The Bright Spot: 2027 Looks Better

Fannie Mae’s revised forecast isn’t all bad news. While 2026 starts are projected lower, the agency raised its 2027 estimate to 1.02 million single-family starts — a 7.7% rebound. The thesis is that rates will gradually decline through late 2026 and into 2027 as inflation continues to moderate, releasing pent-up demand from both buyers and builders.

But that assumes no additional economic shocks, inflation continuing to cool, and the Fed cutting rates at least twice in the back half of 2026. In the current geopolitical environment, none of those assumptions are guaranteed.

What Less Construction Means for Buyers

The U.S. housing market is short an estimated 3.8 million homes, according to Freddie Mac’s latest analysis. When construction slows, that gap widens. And a wider gap means continued upward pressure on prices even as demand softens.

This is the paradox of the current market: rates are high enough to discourage buyers, but not high enough to cause price declines, because there simply aren’t enough homes for sale. Existing homeowners won’t list (they’re locked into low rates), and builders are pulling back on new supply.

The result is a market that feels unaffordable to buyers but doesn’t offer the price relief you’d normally expect in a high-rate environment. If you’re navigating this market, understanding how mortgage rates affect your purchasing power is critical. Our mortgage rates guide explains the mechanics.

Where Building Is Still Happening

Not all markets are slowing equally. Permits and starts remain strongest in:

Texas: Houston, Dallas-Fort Worth, and San Antonio continue to lead the nation in new home construction, though the pace has slowed from 2024 peaks.

Southeast: Charlotte, Raleigh, Nashville, and Atlanta are still seeing above-average activity, driven by population growth and relatively lower land costs.

Mountain West: Boise, Salt Lake City, and Denver have seen sharper pullbacks, with starts down 15-20% from year-ago levels. These markets are more sensitive to rate changes because new construction makes up a larger share of total sales.

The Northeast and Midwest continue to see minimal new construction, which is part of why those markets are holding up on pricing — demand in Hartford, Boston, and Chicago simply can’t be met by new builds.

Multifamily Is a Different Story

While single-family starts are declining, multifamily construction is in outright freefall. Fannie Mae projects just 310,000 multifamily starts in 2026, down 22% from 2025. A wave of apartment completions from 2023-2025 building permits has flooded certain markets with new rental supply, pushing vacancy rates above 7% nationally and killing incentives for new projects.

For renters, that’s actually good news — more supply means softer rent growth. For the housing market overall, though, fewer multifamily starts mean less total housing production at a time when the country needs more of every type.

The Bottom Line

Fannie Mae’s downgraded construction forecast is a reminder that the housing supply crisis isn’t getting solved anytime soon. Builders are pulling back precisely when the country needs them most, caught between high material costs, uncertain demand, and elevated interest rates.

For buyers, this means the inventory squeeze will continue. Don’t expect a flood of new homes to bring prices down. Your best move is to shop aggressively among existing lenders for the best rate — even small differences matter in this environment. Compare mortgage lenders here to see current offers.

For homeowners sitting on equity, the construction slowdown is actually supportive of your home’s value. Less new supply means your property faces less competition. If you’re considering tapping that equity, current HELOC rates remain more attractive than cash-out refinancing for most borrowers.

Reviewed by Jordan Reyes, CFP®. Jordan Reyes, CFP®, is a certified financial planner with 12 years of experience in consumer borrowing, debt repayment, and credit-building strategies. Last reviewed May 2026.