Construction companies nationwide are preparing for another difficult year ahead as international conflicts and trade policies continue to drive up building costs while high mortgage rates keep potential buyers away from the market, industry experts report.
The housing construction sector has faced declining sales for multiple quarters, with years of insufficient building due to worker shortages and restrictive zoning laws pushing home prices beyond many buyers’ reach. Recent trade policies and Middle Eastern conflicts have made these existing problems worse, according to industry analysts.
Building material costs remain high following dramatic increases during the inflation surge that followed the pandemic.
Financial analysts at Barclays cautioned that “eventual inflation in development costs — pipe, freight, and infrastructure facing new inflationary dynamics — will be difficult for builders to pass on, leading to further margin challenges and/or more reduction in starts.”
Lennar’s Chief Executive Stuart Miller confirmed that trade policies and immigration challenges are increasing both material and labor expenses.
“With affordability at stake, we have been working hard to push against and to manage these pressures through our trade partner relationships,” Miller stated during a company earnings discussion last month. “Nevertheless, the cost structure in the industry is pushing higher and is difficult to manage.”
KB Home’s Chief Executive Robert McGibney similarly noted “some pressure on material costs from lumber.”
Many construction companies have turned to offering incentives such as mortgage rate reductions to maintain sales numbers, and industry watchers predict this strategy will continue.
A temporary drop in 30-year mortgage rates below 6% in late February, driven by cooling inflation and declining Treasury yields, didn’t last long as rates quickly returned to approximately 6.5% by early April, further limiting buyers’ purchasing power.
The conflict between the U.S.-Israel alliance and Iran, which began on February 28, has dealt another setback to an already weak housing market recovery by pushing oil prices and bond yields higher.
“With oil prices being higher, certainly, that can bleed into land development and vertical construction,” particularly since petroleum products are essential components in many home building materials, increasing overall costs, KB Home’s McGibney explained.
“Geopolitical tensions, higher rates, and broader economic uncertainty are weighing on consumers in a vital period of the spring selling season,” stated Barclays analyst Matthew Bouley.
Wells Fargo analyst Sam Reid shared similar concerns, pointing out that housing company stocks have underperformed the S&P 500 by 12 points since the conflict began.
The timing is particularly problematic since homebuyer activity typically reaches its annual peak between March and June.
Evercore ISI analyst Stephen Kim described this year’s spring selling period as “disappointing” thus far, with demand patterns performing worse than the same timeframe in 2024 and 2025.
Both Lennar and KB Home reported spring sales figures that fell short of projections.
“It is likely that builders begin another cycle of guidance reductions,” Bouley predicted. “Even if delivery guidances hold, we think there is (an) increasing risk of negative revisions later in the year.”
DR Horton is scheduled to release earnings results on Tuesday, with PulteGroup following on Thursday, and NVR also expected to report this week.
