2026 homebuilder outlook shifts to "deteriorating": Fitch

The slow start to the spring selling season is driving Fitch Ratings to revise its 2026 homebuilding outlook.

The rating agency lowered its 2026 forecasts for single-family housing starts to a 4.5% decline from prior expectations of an increase of 0.5%, while new home sales projections shifted to a 2.5% drop from a gain of 1.5%.  

Affordability pressures from inflation are decreasing purchasing power, especially for first-time buyers. Homebuilders are increasingly offering mortgage rate buydowns and other discounts to encourage signing, which Fitch Ratings expects will lower home building revenue overall. 

Economic uncertainty is also keeping 10-year Treasury yields higher at 4.5%, which is pushing up the mortgage rates. Fitch had expected the 30-year FRM to come down to 6% by the end of 2026 from Fed cuts but the rate now hovers around 6.5%. 

"The housing market remains soft as higher mortgage rates, rising gas prices and economic uncertainty related to the war in Iran continue to dampen buyer demand," said National Association of Home Builders Chairman Bill Owens in a press release.

Five of the major U.S. homebuilders reported between 20 and 50% lower earnings in the first quarter of 2026 compared with one year prior. 

Fitch Ratings also expects the EBITDA margin for builders, which measures how much a company can make before paying debts and obligations, to continue to tick downward from higher land costs and incentives, and while builders have a sizable cash cushion, it is shrinking from discounts. 

The median sales price of houses sold in the first quarter of 2026 was $403,220. But more sellers than buyers in the market could lower prices and soften the blow of increasing interest rates. 

"A lot of lenders were hopeful of interest rates going down," said John Geertsema, managing principal at Capco. "So home values decreasing may kind of soften the blow of increasing interest rates."

Single-family new home sales were a seasonally adjusted 655,000 in April, down from March's rate of 717,000, according to data drawn from the U.S. Census Bureau. 

Single family starts are expected to be lower, but Fitch Ratings projects multi-family starts to grow by 9.6%. American's demand for housing supports this split outlook because single family homes are no longer as affordable. 

Big developers like D.R. Horton Inc., Lennar Corp. and KB Home missed expectations last quarter as well, and the Iran war has made it difficult to keep costs down with rising oil prices. 

The Fed has kept short-term interest rates steady, but inflationary pressures might force Chair Kevin Warsh's hand. 

"Trump would like to see a lowering of interest rates, that was obviously a big point of contention between Trump and Powell," said Geertsema. "Now, it feels like those rate cuts are off the table and there might be some increases around the corner."