"U.S. homebuilders had hoped for a robust spring market this year after the winter brought falling mortgage rates and rising homebuyer demand," reported CNBC's Property Play in a newsletter last week.
However, it went on to state that the conflict in the Middle East "threw a wrench into that optimism, pushing rates higher and layering on big increases in costs for materials and transportation due to the spike in oil prices."
The National Association of Home Builders' (NAHB's) April builder sentiment report made a similarly disappointing assessment: "Economic uncertainty coupled with rising building material costs and interest rates resulted in a sharp decline in builder sentiment in April as the housing market enters into the heart of the spring buying season."
How Much Trouble Is the Construction Sector In?
"Builder sentiment has fallen back in spring as buyers face ongoing elevated interest rates and growing economic uncertainty," NAHB Chairman Bill Owens commented in the report. He goes on to remark that while builders had started the year hopeful, global events, higher energy costs, and reduced consumer confidence has led the outlook to decline.
According to Robert Dietz, the NAHB's chief economist, gas and diesel prices account for roughly 4% of all construction material and service costs. It's easy to see why: Many materials are transported on trains or trucks that burn diesel.
Diesel prices at the pump have risen to $5.46 a gallon on Apr. 27 from $3.67 on Feb. 28, according to the Climate Solutions Lab at Brown University. That's a 48.9% increase.
Now, a 48.9% increase on a 4% cost may not sound too bad. But when you're talking about new homes with a median sales price above $400,000, it can start to add up. And it comes at a time when many developers are already having to offer discounts and incentives to entice home shoppers.
Higher Rates Compound Problems
The average rate on a 30-year fixed-rate mortgage was 5.98% on Feb. 28, according to Freddie Mac. By Apr. 23, it was 6.23%.
In fact, according to multiple sources, it was actually north of 6.3% on Apr. 24. Of course, all these mortgage rates are attractively low if you compare them with the first nine months of 2025. Indeed, the average peaked at just over 7% in January of that year.
But home builders were hoping for a sub-6% rate for the rest of 2026, and that's now looking unlikely. Besides oil, a range of prices is expected to rise as a result of the closure of the Strait of Hormuz, including many food prices, as a chunk of the global supply of fertilizer is held up at a time when it's growing season in much of the world.
And both general interest rates and mortgage rates pretty much never fall when inflation is running too hot.
High mortgage rates deter homebuyers, making it more difficult for developers to sell homes. But construction companies are being hit in another way.
Home builders tend to finance the purchase of land and its development costs by borrowing. So, they, too, will have to pay more for their loans until interest rates moderate. And that adds yet more pressure on their bottom lines.
Labor Shortages Remain an Issue
The construction labor force is heavily reliant on immigrant labor, both documented and undocumented. "The recent slowdown in immigration will limit foreign-born labor for the trades, however, potentially worsening chronic labor shortages and constraining the ability to build and remodel housing," said the Harvard Joint Center for Housing Studies in a January 2026 report.
"While immigrants make up about one in five workers nationally, they make up one in three workers in the construction trades, defined here as those working in skilled trade occupations," continued the report.
"Foreign-born trades workers were most commonly construction laborers or carpenters in 2024, but they played an outsized role in other occupations. Three-fifths of plasterers and drywall installers were foreign-born in 2024, as were half of all roofers, painters, and carpet, tile, and floor installers."
Meanwhile, in October 2025, the NAHB reported: "Home building non-supervisory workers’ wages trended higher, rising 9.2% in July, substantially outpacing inflation and wage growth for the overall sector." So, we can add higher labor costs to the higher fuel costs and borrowing costs that developers are enduring.
Some Grounds for Optimism
Only weeks ago, we were reporting signs that this spring's buying season might be a strong one. And many of those signs may still be in place.
If that's the case, home builders might be able to sell more inventory than expected in the coming months, which should free them up to build more new homes. And that can only be good news in a market with a severe shortage of available properties.
