Savannah Chamber

11 Housing Market After a brief pandemic-related boom, the U.S. homebuilding and home selling industries bottomed in 2023-24 and moved sideways in 2025. We have seen an occasional uptick in permitting activity and home sales, but these proved to be bounces along the bottom of the trough of the housing recession rather than the beginning of a meaningful recovery. Ac- tivity is depressed because affordability is at record lows, few people are desperate to buy or to sell, economic uncertainly is high, and almost nobody's moving. It does not help that tariffs have raised the cost of building materials. In addition, the stricter enforcement of U.S. immigration laws is curtailing the number of foreign-born workers in many construction trades. Since we do not expect these negative factors to change very much in 2026, the homebuilding and real estate industries will remain in recession. In mid-2025, U.S. existing home prices were 59 percent higher than prior to the pandemic (2019:Q4), or more than double the 24 percent inflation rate over that same period. Year-over-year (2024:Q2 to 2025:Q2), home prices were up 4 percent. In 2026, we expect home prices to drop slightly although homes are no longer affordable. In fact, the Federal Reserve Bank of Atlanta estimates that homeownership costs 48 percent of U.S. median income, which is the highest on record. In 2026, we expect the Federal Reserve to reduce the federal funds rate to 3 percent, which will bring down short-term interest rates, but is unlikely to bring down long-term rates very much. Consequently, mortgage rates will fall slightly but not enough to provide a meaningful boost to home sales or new construction. Nonresidential Construction Overall spending for new nonresidential construction will increase slightly in 2026. Public-sector spending will be much more vigorous than private-sector spending, but both will increase. In the private sector, there is a need for more data centers, transmission infrastructure, power generation facilities, medical buildings, and educational facilities. Investors will be interested in new properties because real estate holdings are a hedge against inflation. But trade tensions, dollar strength, and travel restrictions will continue to dampen foreign investors' interest in U.S. real estate. There will be bright spots. Private spending will increase to build data centers, power distribution and generation infra- structure, and R&D facilities. Construction spending by state and local governments, and the military will increase. In contrast, there will be little interest in new office buildings or shopping centers, and the economic slowdown will limit the creation of new manufacturing facilities. Public and private sector spending for nonresidential construction will not in- crease very much because revenue growth is slowing and that there is less federal support for many expensive programs. Equipment We expect inflation-adjusted spending for equipment to increase by about 1 percent in 2026 as slower economic growth takes its toll. We do not expect lending conditions to loosen because banks will maintain a risk-off stance. Tariffs will limit capital spending. High interest rates are a negative, too. High labor costs coupled with slower top-line growth will squeeze corporate profit margins, which will be a headwind for investment spending. Corporate profits will rise by about 2 percent, but capacity utilization will be 75 percent, which is too low to stimulate stronger investment spending. On the positive side, competitive pressures and the boom in technology- centric trends ranging from AI to remote work, online shopping, mobile banking, telemedicine, and video conferencing will push businesses to spend more on equipment and software and will be a powerful driver of GDP growth.

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