High mortgage rates, rising material costs and a labor shortage are holding back US homebuilding, adding to a housing shortage that Realtor.com estimated exceeded 4 million homes by the end of 2025. The NAHB/Wells Fargo builder confidence index fell to 29 in October, where readings above 50 indicate more builders see conditions as good than poor. The average 30-year mortgage rate climbed to 7.4% this month, its highest since November 2023, and 43% of builders cut prices, the highest share since 2020. Single-family starts fell 4.6% in September from August and are still down 4% so far in 2026. Housing experts caution that the recently passed 21st Century Road to Housing Act, which aims to ease construction and zoning rules, will take years to deliver benefits.
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SPY
▼ Likely negativeSPDR S&P 500 ETF
Relevance: low
| Market | US stocks |
|---|---|
| Sector | ETF |
| Close on 10/20/2026 | 769.05 |
| Change that session | +0.34% |
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Related news
- Rising costs and high rates threaten to keep US homebuilding in a slump
Rising construction costs, high interest rates and labor shortages are holding back US homebuilding, threatening to prolong a housing shortage that Realtor.com estimates at more than 4 million homes by the end of 2025. Builder confidence on the NAHB/Wells Fargo Housing Index fell to 29 in October, and 43% of builders cut prices, the highest rate since 2020. The average 30-year mortgage rate rose to 7.4%, the highest since November 2023, while single-family starts fell 4.6% in September from August. The 21st Century Road to Housing Act became law without the president's signature in July to speed construction and ease zoning rules, but experts say the benefits will take years to appear.
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Married couple Jessica Ongarello and Callum McIntyre, who rent in Melbourne's inner east, decided to buy in the area they want to live as house prices fall. According to Domain, Melbourne house prices fell 3.3% in the September quarter 2026, the third consecutive quarterly decline, and the downturn has spread to every capital city for the first time in 15 years. Perth recorded a record 4.7% drop, while Brisbane and Adelaide also logged their steepest quarterly falls on record. Melbourne's median price is now $1.014 million, while Sydney fell 4.7% to $1.66 million, a two-year low. Higher interest rates, cost-of-living pressures and changes to housing investment tax policy are cited as drivers, and Morgan Stanley expects the market to bottom out in the second half of 2027 with a peak-to-trough fall of up to 15%.
- Housing downturn forecast to run up to 15 per cent
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- Housing downturn forecast to run up to 15 per cent
Morgan Stanley now expects national house prices to fall 10–15% from their peak, with a trough in the second half of 2027, which would be Australia's largest nominal housing downturn in over 40 years. Cotality data show prices have already dropped 5.2% since the March peak, meaning the slide could be only one-third complete. The Reserve Bank's four rate rises in 2026 have exceeded expectations, and markets expect at least one more hike. Budget changes to negative gearing and the capital gains tax discount account for only about five per cent of the expected fall. Because construction accounts for about nine per cent of employment, unemployment could rise to 5.1%, while Australia is about 124,000 homes behind its goal of 1.2 million new homes in five years.
- Housing downturn forecast to run up to 15 per cent
Morgan Stanley expects national house prices to fall 10-15% from their peak, with a trough in the second half of 2027, driven by curbs on negative gearing and the capital gains tax discount in the May budget. Dwelling prices have already dropped 5.2% since a March peak, according to Cotality, and the bank says the slide could be only one-third complete. Interest rates remain the key sensitivity, with the Reserve Bank having raised rates four times in 2026 and markets pricing in at least one more hike. If it plays out, this would be Australia's largest nominal housing downturn in over 40 years, with unemployment potentially rising to 5.1% as construction, about nine per cent of employment, slows. Construction costs rose 3.2% in the 12 months to September, and Australia is about 124,000 homes behind its goal of 1.2 million new homes in five years.
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Two reports suggest Australia's residential construction market is weakening significantly amid falling prices, rising interest rates and federal budget changes to negative gearing and capital gains tax. Stockland, the country's largest listed residential developer, reported housing inquiries of 10,452 in the September quarter, almost half the 20,183 recorded earlier in the year and its lowest level since at least 2020. Higher rates, worsening affordability, rising construction costs and recent investor tax changes are causing buyers to delay decisions. Because Stockland views inquiries as a leading indicator of future sales, the drop raises concerns about a future decline in housing construction.
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