The article below was written by Dr. Robert Dietz, Chief Economist at the National Home Builders Association.
Long-term U.S. interest rates moved higher over the past two weeks as the bond market priced in the effects of heightening geopolitical uncertainty and new leadership at the Federal Reserve. The benchmark 10-year Treasury rate increased 20 basis points to stand between 4.6% and 4.7%. Mortgage interest rates correspondingly increased to near 6.7%.
Rates retreated modestly at the start of this week after President Trump announced the possibility of renewed talks between the U.S. and Iran. However, uncertainty surrounding oil prices, tariff policy, and the long-term federal budget have investors on edge regarding inflation. The Fed’s preferred inflation measure came in at 3.3% in June, well above its 2% policy target.
At the conclusion of its July meeting, the Fed held the federal funds rate at a top rate of 3.75%, with three dissents favoring a 25-basis-point increase. The July meeting marked the fifth consecutive hold. Chairman Warsh’s message to markets was that the Fed would reduce its level of forward guidance. The Fed will no longer provide a sometimes heavy-handed assist to the bond market to price future inflation and Fed policy. Consequently, long-term interest rates increased, steepening the yield curve.
NAHB’s forecast is for no change (no cuts, no increases) for the federal funds rate in 2026, although this case is becoming more challenging to hold given the combination of inflationary factors.
Elevated interest rates held new home sales back during the first half of 2026. Contracts for newly built single-family homes were down 5% compared to the first half of 2025, with all regions showing a decline except the outperforming Midwest. Per NAHB analysis, combined new and existing single-family home inventory now stands at a balanced 5.2 months’ supply.
While the market waits for improvements in housing affordability, the share of builders reporting increased merger and acquisition activity in their local markets rose from 14% in August 2025 to 21% in June 2026. Meanwhile, the share of those who have been approached about a potential merger and/or acquisition doubled from 9% to 18%. A decline in single-family starts activity combined with an aging ownership of local home builders points to more acquisitions ahead.
