Construction Industry Outlook for 2026

As contractors and homebuyers both head into the new year, the current economic and political climate suggests the prospect of falling interest rates. While lower interest rates could provide relief to both contractors and homebuyers, elevated material and labor costs continue to be an issue. Here is how the outlook breaks down from both points of view.

Contractor Outlook

For contractors, lower interest rates provide accessibility to necessary capital. Lowing cost of borrowing and debt service provides the ability for developers and contractors to increase margins on tightly budgeted projects and unlock the ability to secure larger bids. If interest rates continue to decrease, we can expect that there will be a rebound in construction spending heading into the new year.

Labor, Material Costs, and Tariff Considerations

However, lower interest rates do not eliminate the fact that contractors continue to face rising costs of labor and materials. Imported materials could be impacted by increased tariffs which will force adoption of new procurement strategies and reevaluation of risk management. Contract language that avoids fixed price agreements and instead changes material prices based on tariff adjustments can hedge against the risk of unexpected price escalations. In addition to increased material costs, a skilled labor shortage in the construction field has increased compensation rates and overall labor costs. While traditional construction roles still need to be filled, the whole industry is becoming increasingly complicated as innovative technologies are integrated into the industry. Digital tools such as AI integration into scheduling programs and BIM modeling along with autonomous equipment and robotics are the construction upgrades of the future. Technologically literate talent is needed to use these integrated programs and advanced equipment.

Technology, Data, and Project Estimating

As the engineering and construction industry finds itself with more digital and technologically rich options for risk management, project scheduling, and on-site equipment, it becomes even more important to ensure data is protected and useful for decision making. Estimating projects must be reevaluated to ensure costs of technology and increasingly more expensive equipment are covered in the cost of new bids.

Growth Varies Across Construction Segments

Not all segments of the construction industry are built equally, and not all segments will experience growth in the same way in the upcoming year. It is projected that commercial projects in infrastructure and data centers will be increasing while traditional commercial buildings and manufacturing will remain more stagnant. If 2026 will be a year of selective growth rather than broad expansion, companies that position themselves now by investing in technology, better procurement, workforce readiness and diversifying into high-growth sectors are best placed to benefit.

Homebuyer Perspective: Affordability and Housing Supply

From the homebuyer side, a fall in interest rates is an encouraging signal. Lower mortgage rates generally mean greater affordability from the perspective of the consumer. This could potentially increase demand for new homes, and thus more construction activity in the residential sector. Expectations for cheaper new homes need to be tempered because, as discussed above, interest rate decreases may help with the cost of borrowing, but increased costs of materials and labor continue to put pressure on new home prices. Additionally, with interest rates decreasing slowly or stagnant, the consumer reaction to lower rates may be delayed which would push the rebound of new residential construction much later into 2026. With this delay, new home inventory may remain limited, which also contributes to high home prices until new home capacity catches up over time.

Overall Outlook for 2026

In general, falling interest rates provide clear potential for renewed construction and improved affordability, but interest rates alone are not a perfect solution. For contractors, individual success will depend on cost discipline, agility, and choosing the right sectors to invest in. For homebuyers, the window for good deals may open, but timing and local market conditions of inventory will matter when it comes to affordability.