Home construction industry leaders are maintaining a cautious view on the home construction market amid tepid demand, shrinking profit margins and weak consumer confidence. The ongoing conflict with Iran could further complicate the prospects for builders.
The National Association of Home Builders (NAHB)/Wells Fargo The indicator for builders’ confidence in the housing market index (HMI) remained below par in March at a reading of 38. The indicator has been relatively flat since October. The good news is that the index has been significantly higher in recent months than the average reading of 32 between June and September last year.
The HMI survey shows that 37% of builders reduced prices in March, while 64% offered sales incentives, which was little changed from the previous month. The average price reduction remained stable at 6%, and March was the twelfth month in a row in which more than 60% of builders took advantage of incentives.
“Affordability for buyers and builders remains a top priority,” NAHB Chairman Bill Owens said in a statement. “Many buyers remain wary, waiting for lower interest rates and due to economic uncertainty. Builders are facing higher land, labor and construction costs and nearly two-thirds continue to offer sales incentives in an effort to strengthen the market.”
Where is the question going?
At the International Builders’ Show in February, many industry insiders noted cautious optimism and anecdotally reported a slight improvement in traffic and demand from mid-December through February, in some cases exceeding what would be expected from typical seasonal shifts.
While this won’t necessarily translate into a material increase in demand for 2026 as a whole, these reports coincide with what some public construction companies reported during earnings calls earlier this year. There is growing hope that even if the homebuilding market doesn’t bounce back immediately, it may already have bottomed out.
Hovnanian enterprisesFor example, during its first-quarter 2026 earnings results, the company reported that its sales pace improved in January and the first few weeks of February compared to a year ago. Toll brothers also reported a “modest” increase in traffic and deposits compared to the same period a year ago.
However, the ongoing war in Iran adds a new layer of uncertainty as the conflict threatens to introduce further supply chain disruptions and undermine consumer confidence during the spring sales season.
The closure of the Strait of Hormuz has caused oil prices to rise almost $100 per barrelan increase from about $65 a barrel before the conflict began.
The Trump administration is working on a plan to guide ships through the Strait of Hormuz, and British Prime Minister Keir Starmer said at a news conference on Monday that Britain is working with allies on a plan to reopen the vital shipping corridor. However, there is no clear timetable for a solution.
The average 30-year mortgage rate has also risen above 6.0% since the conflict began, although rates have been steadily declining since last summer.
“While the Freddie Mac 30-year fixed-rate mortgage averaged 6.05% in February, the lowest since August 2022, down payment hurdles and uncertainty from the Iran conflict and oil prices will create headwinds going forward,” NAHB chief economist Robert Dietz said in a statement.
The number of single-family homes continues to decline
According to U.S. Census Bureau Data released last week shows that single-family home starts fell 2.8% in January to a seasonally adjusted 935,000, a decline of 6.5% year over year. This comes after a 7.3% decline in the number of single-family homes began in 2025.
However, strong performance in multifamily construction saw total housing starts rise 7.2% month over month in January. The number of starts for buildings with 5 units or more increased by 29.1% to an annual rate of 524,000 units.
Permits for single-family homes fell 11.6% year-over-year and 0.9% from December last year, while building permits for multi-family homes fell 13.4% month-over-month. According to Dietz, single-family starts are expected to remain relatively flat through 2026, before an expected 6% increase in 2027.
