Margins shrank, incentives swelled, and spring demand stayed stubbornly soft
US homebuilders headed into the crucial spring selling season facing a familiar squeeze: weaker demand on one side and rising costs on the other, this time intensified by the Iran war and renewed tariff pressures, analysts said.
Elevated mortgage rates, higher oil prices and still‑sticky construction costs combined to undercut what has been a fragile housing recovery in early 2026.
Margins under renewed pressure
Residential construction input prices remained elevated after the post‑pandemic inflation spike, and analysts warned that another step‑up in development costs was coming.
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 CEO Stuart Miller acknowledged that tariffs and immigration issues are adding to material and labor costs.
“With affordability at stake, we have been working hard to push against and to manage these pressures through our trade partner relationships,” Miller said during an earnings call last month.
“Nevertheless, the cost structure in the industry is pushing higher and is difficult to manage.”
KB Home CEO Robert McGibney also flagged “some pressure on material costs from lumber.”
Analysts at Barclays said the sector is risking another “lost year,” with elevated inventories and incentives eating into profitability.
War, oil and a faltering spring
The US–Israel war with Iran, which broke out on February 28, pushed oil above $100 a barrel and helped nudge the average 30‑year mortgage rate back into the mid‑6% range, after a brief dip below 6% in late February.
The conflict adds a fresh layer of uncertainty for buyers already wary of prices and job security, with survey data suggesting many households delayed big‑ticket purchases such as homes.
“Geopolitical tensions, higher rates, and broader economic uncertainty are weighing on consumers in a vital period of the spring selling season,” Barclays analyst Matthew Bouley said.
Wells Fargo analyst Sam Reid noted that housing stocks lagged the S&P 500 since the start of the war, while Evercore ISI’s Stephen Kim called this year’s spring season “disappointing” compared with 2024 and 2025.
Builder sentiment reflected that chill. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index dropped to 34 in April, its lowest level in months, after sitting below the neutral 50 mark for most of 2025 and early 2026 as affordability and construction costs weighed on demand.
Incentives carry growing risks
To protect volumes, builders leaned more heavily on incentives such as mortgage rate buydowns, a trend analysts expected to persist.
A brief reprieve in rates proved short‑lived as borrowing costs climbed back to around 6.5% by early April, further pressuring buyers’ monthly budgets.
“Market conditions remain challenging with two‑thirds of builders reporting they are offering incentives to move buyers off the fence,” NAHB chairman Buddy Hughes said late last year.
Temporary rate buydowns had surged across many new‑build communities as a way to offset elevated rates and construction costs, even as economists warned that widespread buydowns could erode margins if high rates persisted.
With both Lennar and KB Home reporting spring sales below expectations and analysts bracing for another round of guidance cuts, Bouley said “it is likely that builders begin another cycle of guidance reductions. Even if delivery guidances hold, we think there is (an) increasing risk of negative revisions later in the year.”
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