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U.S. homebuilders will likely point to another challenging year as tariffs and the Iran war further squeeze margins, while rising inflation continues to sideline buyers, analysts said.
The sector has struggled with declining sales for several quarters, as years of underproduction, due to labor shortages and restrictive land zoning, have pushed home prices higher. The challenges have been exacerbated by new tariffs and the Middle East conflict, analysts said.
Residential construction input prices remain elevated after soaring during the post‑pandemic inflation spike.
Analysts at Barclays warned 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 (LEN.N) CEO Stuart Miller acknowledged that tariffs and immigration issues were 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."
Peer KB Home (KBH.N) CEO Robert McGibney also flagged "some pressure on material costs from lumber."
To protect sales volumes, many builders have leaned on incentives like mortgage rate buydowns, and analysts expect that trend to continue.
A brief dip in the 30-year fixed rate to below 6% in late February, on cooler inflation and falling Treasury yields, proved short lived, as rates soon climbed back to around 6.5% by early April, pressuring customers' affordability.
The U.S.-Israel war with Iran, which broke out on February 28, delivered a fresh blow to an already fragile housing recovery, sending oil prices and yields higher.
"With oil prices being higher, certainly, that can bleed into land development and vertical construction," especially considering petroleum is needed for a lot of products that go into a home, driving up costs, KB Home's McGibney said.
SLOW SPRING
"Geopolitical tensions, higher rates, and broader economic uncertainty are weighing on consumers in a vital period of the spring selling season," said Barclays analyst Matthew Bouley.
Wells Fargo analyst Sam Reid echoed the concern, noting housing stocks have lagged the S&P 500 by 12 points since the start of the war.
The stakes are high, given buyer activity typically peaks from March through June.
Evercore ISI analyst Stephen Kim called this year's spring selling season "disappointing" so far, with demand trends worse compared to the same period in 2024 and 2025.
Both Lennar and KB Home reported early spring sales below expectations.
"It is likely that builders begin another cycle of guidance reductions," Bouley said. "Even if delivery guidances hold, we think there is (an) increasing risk of negative revisions later in the year."
DR Horton reports results on Tuesday, followed by PulteGroup on Thursday, and NVR is also due this week.
