Building Material Costs Rise 6.7%, Squeezing Slowing U.S. Housing Market
Key Facts
Building material costs rose 6.7% in the 12 months preceding the July survey, while 72.9% of builders surveyed said the cost of materials for the same home had increased by as much as 15%, according to the National Association of Home Builders. The cost pressure comes alongside declines in construction and sales in a market facing higher mortgage rates and affordability challenges. U.S. housing starts fell 5.2% in September to a seasonally adjusted annual rate of 1.22 million units. Single-family starts declined 4.6% to 859,000 units, according to data the association cited from the Department of Housing and the Census Bureau. New home sales totaled 676,000 at a seasonally adjusted annual rate in September, down 0.6% from August and 5.3% from September 2025, according to the two agencies.
Price data show a more mixed picture than the pace of construction and sales. U.S. home prices rose 2.1% year over year in August, compared with a 1.9% increase in July, while the 20-city composite index rose 2.7%, according to Cotality. The company’s chief economist said inflation-adjusted prices had remained nearly flat since 2022 and that sales turnover was at levels last seen during the Great Recession. The inventory of new homes for sale stood at 476,000 units at the end of September, equivalent to 8.4 months of supply at the current sales pace. The market thus combines an extended supply of new homes with declining construction, while nominal prices continue to rise year over year.
The impact of rising material costs varied by builder size. In NAHB’s July survey, the median annual increase in material costs was 9.1% among builders who started five homes or fewer in 2025, compared with 1.8% among those who started 100 homes or more. Residential construction input prices excluding energy rose 0.4% month over month in July and were up 5% year over year, the largest annual increase since December 2022, according to Producer Price Index data cited by the association. Softwood lumber prices rose 7.4% in July and 17.3% from a year earlier. Ready-mix concrete prices, by contrast, rose just 2.2% year over year, despite falling 0.4% during the month.
Trade duties continue to add pressure to some imported building materials, with rates varying by product and measure. In October, the U.S. Commerce Department cut antidumping and countervailing duties on Canadian softwood lumber imports from about 35.16% to 24.75%. But total duties on imports remained 34.75% after the addition of a separate 10% tariff, according to NAHB. The United States announced a 50% tariff in August on a range of Canadian goods, including wood products and cement, the association said. Cement imports account for about 15% to 20% of the U.S. market, making the duties relevant to the cost of a key construction input. Increases have varied by material: lumber posted a large annual gain, while ready-mix concrete prices rose far less.
Home builder confidence fell to 29 points in October, down three points from the previous reading and the lowest level since June 2012, according to the NAHB survey. A total of 43% of builders cut prices during the month, with an average reduction of 6%. The association attributed September’s decline in housing starts to higher mortgage rates, affordability challenges and rising construction costs. Its president said higher land, labor and construction costs were weakening builder confidence. More than a third of builders also reported immigration enforcement activity in their areas during the previous month, which the association’s president said had caused construction delays. In the multifamily sector, starts fell 6.7% in September to an annual rate of 362,000 units, down 24.9% from a year earlier.
Mortgage financing remained expensive despite a slight decline in the latest weekly reading. The average rate on a 30-year fixed mortgage was 7.24% on Oct. 29, compared with 7.32% the previous week and 6.17% a year earlier, according to The Associated Press. On the outlook, NAHB’s chief economist said September’s single-family starts data were consistent with the association’s expectation that production would decline in 2026, with a further drop in 2027 if rates remain high and material costs rise. The U.S. Census Bureau will release September construction spending data on Nov. 2, 2026, at 10 a.m. Its October residential construction report, including permits, starts and completions, is due on Nov. 18, 2026. The data will provide a gauge of construction activity after starts declined in September.