The cost of materials used in residential construction climbed an average of 6.7% over the past year, adding another layer of difficulty for homebuilders already contending with cautious buyers, slower sales and pressure to offer incentives.
The July 2026 National Association of Home Builders/Wells Fargo Housing Market Index survey found that nearly 73% of builders experienced material-price increases of as much as 15%. More than 28% reported increases between 5% and 9.99%, while approximately 22% said their costs rose between 10% and 14.99%.
Smaller builders appear to be carrying a disproportionate share of the burden. Companies that started five or fewer homes in 2025 reported a median annual material-cost increase of 9.1%. By comparison, builders that started at least 100 homes recorded a median increase of just 1.8%.
The difference reflects some of the advantages available to larger companies. High-volume builders may be able to purchase materials in bulk, maintain inventories and negotiate long-term supplier agreements that protect them from sudden price swings. Smaller operators generally have less purchasing leverage, although some are reducing their exposure by strengthening supplier relationships and securing prices well before construction begins.
Builders Have Limited Room to Raise Prices
Ordinarily, higher construction expenses could be incorporated into the price of a completed home. Today’s market makes that considerably more difficult.
The median price of a newly built home fell to $393,800 in July, down 2.3% from June and reaching its lowest level since July 2021. New-home contract signings also declined 10.5% from the previous month, falling to a seasonally adjusted annual rate of 607,000. That was 6.3% below the level recorded one year earlier.
Higher material prices, tariffs, labor shortages and general inflation are therefore colliding with a buyer pool that remains highly sensitive to affordability. Many purchasers are seeking price reductions, mortgage-rate incentives or other concessions, leaving builders squeezed between rising project costs and limited pricing power.
The effects are already visible in construction activity. Single-family housing starts declined 9.9% from June to July and were 15.7% lower than a year earlier.
What This Means for the Housing Market
Some builders are becoming more selective about when and what they build, particularly when a buyer has not yet committed to the property. Rather than completing large numbers of speculative homes, companies may favor presales or delay construction until there is clearer evidence of demand.
For buyers, the imbalance may create short-term negotiating opportunities as builders work to move existing inventory. Over the longer term, however, a sustained reduction in new construction could restrict the supply of new homes and make it harder to address the nation’s broader housing shortage.
The central challenge is that builders cannot indefinitely absorb higher costs while simultaneously lowering prices and expanding buyer incentives. Unless material costs ease or demand strengthens, the pace of new-home construction is likely to remain under pressure.
Source: Realtor.com
