Key takeaways

• Remodeling is expected to grow in 2026, as homeowners stay put and tap into their home equity.
• New construction is expected to remain slow, pressured by tariffs and uncertainty, with mortgage rates likely to stay above 6%.
• Affordability may improve modestly, as income growth outpaces price gains and the housing shortage gradually eases.

The state of remodeling may be dismal, but it is at least expected to outpace construction in 2026, industry leaders say.

“There’s no way to sugarcoat it — last year was a challenge for our industry,” Bill Darcy, National Kitchen & Bath Association president and CEO, said at Design & Construction Week on Wednesday in Orlando, Florida.

Impacts from tariffs and consumer uncertainty held back remodeling and the new-construction markets. At the National Association of Home Builders’ industry outlook presentation, Chief Economist Robert Dietz said challenges like labor and policy uncertainty will hang over homebuilding through 2026, holding back its growth.

Dietz described 2026 as “one of cautious optimism," highlighting the rising prices of materials as a challenge for builders and buyers amid historically high home prices.

On the contrary, the kitchen and bath industry said it may finally see growth after years of contraction.

Darcy said tariffs had “upended global economics,” but “we’re predicting that the market will return to growth gradually after three consecutive years of contraction.”

Other factors, Darcy said, that were dragging down consumer confidence and playing havoc with certainty were the rise in insurance costs and “what the Fed was going to do.” Minutes from a meeting of the Federal Reserve released the same day said it was likely going to pause rate cuts for the time being.

Higher mortgage rates have affected remodeling and new construction in different ways, and that trend will continue in 2026, even as experts such as Dietz and Homes.com Chief Economist Brad Case predict slight decreases in interest rates through the year.

NAHB predicts rates will remain above 6% through 2026, and “a sustained sub-6% mortgage rate will likely wait until 2027,” said Dietz.

Some people have been locked in their homes by mortgages with historically low interest rates, Darcy said, but one positive effect is that those homeowners are spending more on remodeling.

“Older homeowners are choosing to stay put and increasing investment in their homes, rather than moving or downsizing,” Darcy said.

Equity is the major differentiator between homeowners remodeling and homebuyers buying. With home price appreciation in the last six years, homeowners can better finance remodeling projects, but prospective buyers don’t necessarily have the luxury of drawing on home equity.

With that difference, new construction is expected to tick up by 1% in 2026 with expectations of 5% growth in 2027, Dietz said. Multifamily starts will drop in comparison by 5% in 2026 and even further in 2027.

In contrast, Darcy said his research showed single-family construction is expected to decline by 3%, but the kitchen and bath industry is expected to recover in the second half of 2026, with estimated earnings of more than $228 billion by the end of the year.

The recovery will be felt most strongly on the repair and remodeling side of the industry, Darcy said, which his organization expects to grow by 2.9%.

When it comes to new construction, Dietz highlighted the ongoing shortage of homes as a source of constant demand and said that will all change in four years.

“Dietz commented that the current shortage of homes in the U.S. stands at 1.2 million, and he forecasts the shortage will close by 2030. This suggests there will be more balanced conditions between supply and demand,” said Erika Ludvigsen, chief analytics director for Homes.com.

Homes.com's Case told trade show audience members that a key signal of improved housing affordability is income growth. Case said he expects incomes to increase by just under 4% across all income levels.

This is compared with smaller price appreciation predictions through 2026 and beyond, which will increase buying power.

The latest Homes.com housing market data shows that high run-ups in price appreciation have stalled in the last half of 2025 and into the beginning of 2026, with more modest monthly price increases and even decreases in some metropolitan areas.

Original Article By Caroline Broderick & Trevor Fraser, Homes.com