Inflation Risks Rise from Renewed Iran War
NAHB Chief Economist Dr. Robert Dietz provided the following economic overview in his bi-weekly newsletter, Eye on the Economy.
June inflation data provided some relief for consumers and the bond market. Headline inflation slowed from 4.2% to 3.5% and core inflation fell back to 2.6%. While still above the Fed’s target of 2%, the progress on inflation was a result of the Iran war ceasefire.
However, renewed hostilities and the end of the ceasefire are placing upward pressure on oil prices, which have risen above $80 a barrel. Rising energy costs are expected to push July inflation higher. Additional pressure will come from a renewed administration effort to establish tariffs in lieu of the Supreme Court striking down the prior system.
Inflation remaining in the 3% range likely eliminates any hope for an additional Federal Reserve rate cut for 2026. And some market participants believe the new Warsh-led Fed may increase interest rates before the end of the year. Inflation is affecting building materials as well. Residential construction input prices were 6.2% higher than a year ago, including a 4.6% increase for building materials and a 5.2% gain for services.
Given this macroeconomic and monetary policy environment, 2026 will be the second consecutive year of declines for single-family home building. On a month-to-month basis, housing starts increased in June, fueled by a surge in apartment construction. Single-family starts decreased 0.2% to an 895,000 seasonally adjusted annual rate and are down 3.2% compared to June 2025. Single-family construction is down 5% on a year-to-date basis. NAHB’s forecast shows a 3% decline for 2026. The multifamily sector is up 17.2% compared to June 2025, reflecting ongoing for-sale affordability challenges.
The data are consistent with recent industry surveys. According to the NAHB/Wells Fargo Housing Market Index, builder confidence fell two points to 34 in July. The survey also revealed that 37% of builders reduced prices and 63% used sales incentives, as elevated rates and construction costs continued to constrain demand.
While spec home building has shown weakness (responsible for a market share decline in 2025 for the largest builders), there are sectors showing strength. The remodeling sector continues to be a relative bright spot for the housing industry. The NAHB Remodeling Market Index fell one point to 61 in the second quarter, with the Current Conditions Index unchanged at 70 and the Future Indicators Index down two points to 52.
Age-restricted housing has also shown strength. About 47,000 homes were built in age-restricted communities in 2025, equal to 3.45% of all housing starts, including roughly 30,000 single-family units and 17,000 multifamily units. This was a 9% gain over the 2024 total, with that momentum expected to continue in 2026.