The foundation of the American housing market is cracking under pressure. Luxury homebuilder Toll BrothersTOL

and home improvement giant Home DepotHD

both issued downbeat guidance for fiscal 2026, reinforcing that the affordability crunch squeezing homebuyers isn’t letting up anytime soon, even with the Federal Reserve preparing to cut rates.

Sounding the alarm: The cautious outlook from these industry bellwethers comes as high mortgage rates and tariff worries continue to deter buyers. Toll Brothers posted fourth-quarter revenue of $3.42B, with adjusted earnings of $4.58 per share falling short of expectations — a sign that even its luxury customers are hesitating. CEO Douglas Yearley said wealthier buyers usually feel less affordability pressure, yet demand is still softening. Home Depot CFO Richard McPhail acknowledged the same headwinds but remained optimistic, saying easing housing pressures should eventually lift home improvement faster than the broader economy.

• Home Depot projected comparable sales growth of flat to up 2% next year, below analyst estimates and signaling little expectation of a near-term housing rebound.
• Toll Brothers expects to deliver 10.3K to 10.7K units in fiscal 2026, missing analysts’ projections, with an average selling price of $970K to $990K.

The Affordability Abyss Deepens

With more than 75% of US homes now priced beyond what typical households can afford, the gap between the American Dream and American reality has rarely felt wider. Bankrate says buyers need about $113K in annual income to afford a median-priced home, almost $30K above what the median household earns. Currently, Zillow estimates a 4.7M home shortage, adding more strain to a market already defined by tight supply and stretched budgets.

• In the country’s most expensive markets, including New York, San Francisco, and Seattle, households need at least $200K a year to afford the median-priced home.
• Homeownership has slipped to about 65% from a 69% peak in 2004, with first-time buyers accounting for only 24% of sales last year, versus 50% in 2010.

Rate cuts won’t rescue this wreck: The Fed is expected to trim rates by a quarter point this week, but multiple sources indicate it may be the last cut for some time. New York Fed president John Williams and San Francisco Fed president Mary Daly both backed a December move, yet the committee is signaling a high bar for further easing in 2026. Goldman Sachs economist David Mericle added that Powell will likely stress that “the bar for future cuts has risen.” Even if mortgage rates drift toward 6.3% next year (from 6.6% in 2025), that relief won’t solve the supply shortage or income gap weighing on buyers.