Iran War Adds to Economic Headwinds
NAHB Chief Economist Dr. Robert Dietz provided the following economic overview in his bi-weekly newsletter, Eye On the Economy.
A multidimensional supply shock is weakening the U.S. economy, fueled by the delayed effects of the 2025 trade wars and tariffs, elevated oil prices, and persistent policy uncertainty. These dynamics are now spilling over into the demand-side of the economy, as consumer confidence decreased significantly in April because of the Iran war and rising uncertainty.
Inflation jumped in March, with the Consumer Price Index (CPI) increasing from 2.4% to 3.3% on a year-over-year growth rate basis. This was the highest rate of consumer inflation in almost two years. Nearly three-quarters of the March increase was due to higher gas prices. In fact, overall energy prices were up almost 11%.
There was a sliver of good news in the CPI data, as core inflation (minus food and energy) was up only 2.6% year over year. However, producer prices are rising as well, with the PPI up 4% year-over-year in March, signaling higher business costs ahead. With inflation higher, the probability of a Federal Reserve rate cut at any point in 2026 has been significantly reduced. Treasury Secretary Scott Bessent noted that the Fed may have to wait for additional clarity before making future policy changes.
Further, as a result of these headline macro headwinds, economic growth will be lower in 2026 than in 2025, and inflation and unemployment will be higher. Long-term interest rates remain elevated, with mortgage rates just below 6.4%. NAHB is forecasting less than 2% GDP growth for 2026 and recession risk in the coming year has increased to 40%, perhaps higher if the already tenuous cease fire with Iran does not hold.
The March labor market data was positive, with 178,000 jobs created after 133,000 job losses in February. Nonetheless, the overall pace of job creation has slowed, with just an average of 68,000 jobs created per month over the first quarter of 2026. The number of open construction jobs remains relatively low, just 202,000 in February as the low-hire, low-fire labor market affects most industrial sectors.
With macro conditions weakened and uncertainty elevated, housing demand will decline in 2026. The housing market needs greater certainty and a reduction of headline risk to regain momentum.