This article originally published on BuilderOnline.com. Additional reporting by Sarah Bonnarens.
Forecasting the housing market is always a balancing act, requiring us to weigh hard data against human judgment. This year, that balance feels especially fragile with new policies, conflicting datasets, and a widening gap between hard economic indicators and soft sentiment measures all pointing to a more fluid environment. As a result, the risks to this year’s forecast are higher than usual. While our primary focus here will be on housing starts, we will also discuss our sales and mortgage rate expectations.
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Our base case is that housing starts in 2025 will be essentially flat, with total starts just under 1.3 million, a 0.1% dip from last year. Broken down, single-family construction is forecast to 935.0K starts (+1.0%), while multifamily activity is expected to ease to 340.0K starts (–2.9%). In other words, 2026’s starts activity is expected to be more of the same, though with a little extra spice from additional uncertainty at the margins.
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Pulling Back the Curtain
This housing forecast doesn’t come from a black box. It is produced by a team of people who live and breathe housing. At Zonda Economics, we’re self-proclaimed housing nerds; we study the market not only because it is our profession, but because it is our passion.
Staying ahead of the curve means consuming a wide range of information, including economic reports, earnings calls, government releases, client conversations, and builder surveys. We read, watch, listen, and connect, both with each other and with industry leaders. This curiosity fuels our models and helps us catch signals before they fully show up in the data.
Behind the scenes, the forecasts you read are the blended work of Zonda’s Economics and Building Products teams. Both are small groups with deep market experience who combine economic analysis, building products expertise, and daily market immersion to produce thoughtful reports and forecasts.
Our team is fully remote, with home bases in California, Arizona, Wisconsin, Texas, and Canada, but we often work from farther afield. Last year alone, team members logged hours from Hawaii, Mexico, England, Washington, El Salvador, Florida, and Japan.
Regardless of the location, our team remains closely connected. Constant communication keeps us aligned, and each team member brings a unique perspective to the table, whether that means specializing in single-family rentals, master-planned communities, demographics, or the rental market. The outcome is a forecast built on passion, collaboration, and curiosity rather than a machine simply spitting out numbers.
The Forecasting Model
At the core of the combined forecasting efforts is a quantitative model refined through trial and error. By rigorously back-testing decades of data, we have determined the mix of indicators and weights that consistently produce the most accurate and reliable results. The model combines traditional economic measures with housing-specific variables, ensuring it captures both the broader macroeconomic environment and the unique dynamics of the residential sector.
Today’s model incorporates a broad range of inputs, including:
Employment growth and job openings
Mortgage rate trends
Builder confidence measures
Housing affordability metrics
Zonda’s proprietary land and lot data
New and existing home sales
This approach is strengthened by deep expertise on our team, including PhD economists as well as Todd Tomalak, Zonda principal and an 11-time winner of the Chicago Federal Reserve’s “Most Accurate Forecaster” award.
It is also important to note that the quantitative forecasting model itself is far from set in stone. It evolves as market conditions change, with the formula recalibrated to emphasize the indicators that matter most in each specific phase of the housing cycle.
Still, even the best quantitative models have their limits. Forecasts are only as strong as the assumptions behind them, which is why we look beyond the numbers and add context from real-time, real-world insights.
Housing is ultimately a business of people, and the factors that influence demand often begin as whispers before they show up in the hard data. This realization that numbers can only take you so far, especially when it comes to the housing market, is why qualitative analysis is also layered into our forecasting.
We track everything from consumer psychology to the ripple effects of policy changes. Tariffs, for example, may shift the cost structure for building products in ways that are not immediately reflected in the data. Similarly, consumer sentiment—whether people feel secure in their jobs, optimistic about the future, or locked out by affordability—often shifts the needle months before sales data officially confirms it.
Our model is also cross-checked with Zonda’s monthly builder surveys that ask about anticipated growth in community counts and starts. If our model diverges from what builders on the ground are telling us, we don’t hesitate to adjust.
Zonda’s advisory team adds yet another layer of perspective, sharing real-time signals from their daily conversations with clients across the industry. Together, this combination of quantitative and qualitative perspectives creates a forecast that reflects both the mathematical and emotional aspects of the market.
So, what does all of this add up to?
We expect housing starts to hold steady in 2026. Single-family starts will scrape by with modest growth to 935K as demand stabilizes and builders continue to adjust their product offerings to meet affordability challenges. Multifamily starts, on the other hand, are expected to decline by 2.9% to 340,000; we anticipate apartment developers will remain cautious, given elevated construction costs, tighter financing, and the need to work through excess supply.
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On the sales side, we expect national new single-family home sales to follow a similar pattern: largely stable, with modest growth of 1.5% to 660K.
Mortgage rates will, of course, remain a critical swing factor. Our forecast calls for a high probability range in the low-6% range, with a smaller chance that rates will dip into the high-5% range. The latter would require both a softer economy and far more aggressive-than-expected action by the Federal Reserve.
See related: America’s Next Housing Hot Spots: Smaller Markets with Big Momentum
Potential Risks
Housing is uniquely exposed to macroeconomic and consumer dynamics, which this cycle causes meaningful risks in both directions.
Downside risks to our forecasts include:
Recession probability.
Our team is sitting at a 40% recession probability. The key driver here is the gap between consumer sentiment, which is still sour, and actual consumer spending, which has held up. If these two forces converge on the downside, demand could weaken dramatically.
Many companies have already frozen hiring or are dragging their feet when it comes to backfilling vacant positions. Negative job prints in 2026 could be a real possibility, which could weigh on both confidence and demand.
Decline in business investment.
Caution at the corporate level creates a vicious cycle: when businesses pull back on spending, it often results in fewer jobs, lower household incomes, and reduced household confidence.
Mortgage rates staying higher for longer.
If affordability relief fails to materialize and rates remain elevated, many potential buyers could remain on the sidelines.
Oversupply in large production markets.
Texas and Florida together account for half of the output of our top 50 production markets. If builders there prioritize working through existing supply before breaking ground on new projects, national housing starts could slow in the near term.
Upside risks to our forecasts include.
Recession avoided.
If the U.S. manages to sidestep a downturn, consumer confidence could improve and housing demand could bounce back faster than expected. Avoiding a recession is the foundation of nearly every upside scenario.
Most past peak uncertainty.
If uncertainty eases and both businesses and households feel the worst is over, confidence could rebound. This shift in sentiment could encourage companies to expand hiring and consumers to reenter the housing market, leading to stronger-than-forecasted sales and starts.
Rates fall faster.
If mortgage rates slip comfortably into the 5%s while the broader economy remains healthy, affordability improvements could draw discouraged buyers back to the market.
If large production markets such as Texas and Florida can quickly absorb their current supply, builders may be able to ramp up activity, and the national totals could see an increase.
Final Thoughts
While expected numbers are nice to see, the real value of a forecast is that they allow us to prepare for a range of scenarios. At Zonda, we fully acknowledge that 2026’s housing market could unfold along multiple paths. Our goal is just to frame those possibilities, weigh them against both data and lived experience, and provide the housing industry with the best roadmap for navigating uncertainty.
