The U.S. housing and construction sector is moving into 2026 with a measured but generally positive outlook, according to Houzz Inc.’s Q1 2026 U.S. Houzz Pro Industry Barometer. The report points to a construction market that remains resilient despite ongoing cost pressures, labor shortages and weaker sentiment around the broader national economy.
Houzz data shows that 56% of contractors expect 2026 to be a good to very good year, while 28% believe business conditions will remain stable. Another 16% anticipate performance to be weaker than in the previous year.
In the design services segment, sentiment appears somewhat more mixed. Half of respondents, or 50%, said they expect a good to very good year, while 35% described their outlook as neutral. The remaining 15% said they expect 2026 to be weaker than 2025.
Near-term outlook varies between construction and design
Looking specifically at the first quarter, expectations are more restrained on the construction side. The sector posted a reading of 55, following a 4-point decline in Q4 business activity to 51 compared with Q3 2025. Design firms, by contrast, entered the new year with stronger momentum. Their Q1 reading reached 61, supported by an 11-point increase in Q4 business activity to 54, up from 43 in Q3 2025. More architects and designers reported recent gains in activity than declines, helping strengthen confidence on the design side.
Marine Sargsyan, head of economic research at Houzz, said construction and design firms are starting 2026 with a balanced but durable outlook. She noted that while expectations for the broader economy remain muted and both labor and cost challenges continue, many businesses still expect stable project demand. She added that firms are adjusting their business strategies in response, including raising prices, prioritizing larger and higher-value projects, and investing in employee productivity, with growing interest around AI-enabled software tools.
Demand expectations remain supportive
Houzz asked firms in both construction and design about their expectations for 2026 across several key market conditions. In terms of demand, nearly two-thirds of design firms, or 62%, expect improvement during the year. Among construction firms, 57% said the same.
Economic expectations, however, remain divided. More firms believe local economic conditions will improve than worsen, with 38% of construction businesses and 43% of design firms expecting local strengthening, compared with 29% and 26% respectively anticipating deterioration. At the national level, sentiment is weaker. A larger share of respondents expect the U.S. economy to slow rather than improve, including 43% of construction firms and 51% of design firms who foresee slower national conditions, compared with 30% and 32% who expect improvement.
Labor shortages and rising costs remain central concerns
The report also shows that labor constraints continue to weigh on both sectors. More than one-third of construction firms, 36%, expect labor shortages to remain a problem, while nearly one-third of design firms, or 30%, say they expect the same.
Cost pressures are also expected to continue through 2026. A majority of firms in both categories believe product and material costs will increase, including 69% of construction firms and 65% of design businesses.
Revenue growth strategies focus on scale, pricing and productivity
To support growth in 2026, many firms are adjusting their business priorities. Among the most commonly cited strategies are pursuing larger-budget projects, increasing markups or margins, and improving employee productivity.
In construction, 71% of firms said they plan to focus on larger-budget projects, while 45% expect to raise markup or margin and 32% aim to improve employee productivity. In the design sector, 64% said they are targeting larger-budget work, 50% plan to increase margins and 30% are focusing on productivity gains.
Overall, the Houzz findings suggest that while near-term expectations differ between construction and design, both sectors are entering 2026 with cautious optimism and a continued emphasis on strategic adaptation.