Material Costs Rise, Affects Smaller Builders
Material costs increased by 6.7% over the previous year, according to results from the survey for the July 2026 NAHB/Wells Fargo Housing Market Index (HMI).
A large majority (72.9%) of the builders responding to the survey reported that their cost of materials for the same house increased by up to 15% over the past year (at the time of the survey in early July). The most common response (28.4% of builders) was that material prices increased by 5% to 9.99%, followed by 22.4% who indicated a less than 5% change, and 22.1% who indicated 10% to 14.99%.
The median was an annual increase of 6.7% in material costs for the same house. This matches the 6.7% annual increase in in the price of goods (including energy) used in new residential construction reported by NAHB in its recent post on the July Producer Price Index. If energy is excluded, the PPI for goods used in new residential construction increased by 5.0% over that period.
Not all builders experienced the same increase, however. According to the HMI survey, the median annual increase in material prices declines regularly with the size of the builder: from a high of 9.1% for builders who started 5 or fewer homes in 2025, down to only 1.8% for builders with 100 or more starts.
Several reasonable explanations for this tendency exist. For example, larger builders may have greater ability to stockpile materials when they anticipate price increases. Larger builders may also have longer-term contracts with suppliers, locking in current prices for an extended period. Finally, larger builders may be more likely to have special relationships with certain suppliers, allowing them to negotiate deferred price increases.
The price of materials is important, but it is only one of several factors creating housing affordability challenges in the U.S. Others include relatively high mortgage rates, shortages of skilled construction labor, and several different types of regulatory costs.
ECONOMIC OUTLOOK
Elliot Eisenberg, Ph.D. is an internationally acclaimed economist and public speaker specializing in making economics fun, relevant and educational. Dr. Eisenberg earned a B.A. in economics with first class honors from McGill University in Montreal, as well as a Master and Ph.D. in public administration from Syracuse University. Eisenberg is the Chief Economist for GraphsandLaughs, LLC, a Miami-based economic consultancy that serves a variety of clients across the United States. He writes a syndicated column and authors a daily 70-word commentary on the economy that is available at www.econ70.com.
Treasury Transformation
Three structural forces are pushing up long rates: the budget deficit outlook, skyrocketing AI-related corporate debt issuance, and the changing nature of the Treasury buyer. In 2009, 40% of foreign Treasuries holdings were in central banks, today it’s roughly 12%. One-third of the shortfall has been made up by foreign private investors, increasingly dominated by hedge funds who finance their Treasury purchases by borrowing. What could go wrong?
Russian Reach
The Friday File: The deepest hole ever drilled is the Kola Superdeep Borehole, drilled between 1970-1989. It reaches 12.3km, where the temperature is 356F. It’s located on the Kola Peninsula in Northwestern Russia, 155 miles north of the Arctic Circle. Despite its depth, it penetrated just 0.19% of the way to the Earth’s center. Reaching the center would require drilling another 6,359km - if only it were so simple.
Deficit Danger
While the US debt just crossed the $40 trillion mark, what matters much more is debt held by the public, and it’s “only” $32.3 trillion. The difference is intragovernmental debt. But even that number needs context. The critical number: the debt-to-GDP ratio, which, with 26Q2 GDP at roughly $32.5 trillion, is about 100%, near levels last seen just after WWII. The real problem; the staggeringly large 6% annual deficit.
Inventory Indicator
The business sector has been liquidating physical inventories for five straight quarters. If companies were expecting future inflation, they would be building inventories to avert further cost increases —not to mention capturing the IVA revaluation in earnings. Conversely, in 2021 and 2022, corporations sharply boosted inventories for six straight quarters. That should have been a cue at the time that the inflation burst was not destined to be “transitory”.
Payroll Plunge
In CY2023, net job growth averaged 210,000/month; in CY2024, 122,000/month; in CY2025, 10,000/month; and from 1/26–7/26, it’s 61,000/month. Job growth has clearly slowed, partly due to changing immigration policies. Other factors, including Boomer retirements and fewer births, no doubt play a role, but they’ve been steadily ongoing for years. Most disappointingly, the dramatic slowdown shows that the native-born are not picking up jobs formerly performed by those no longer here.
Deceiving Data
July retail sales rang in at a dismal -0.6% M-o-M, and, adjusted for inflation, were slightly worse at -0.7%. Moreover, the “control group” retail sales number, which feeds directly into the personal consumption segment of GDP, contracted 0.4%. But don’t despair. Retail sales have exhibited flat to slow growth since 4/21, after skyrocketing during Covid. Nonetheless, they remain on their pre-covid trend and total household spending continues growing steadily.
Brazilian Beans
The Friday File: Brazil is the world’s largest coffee producer with 35% of global production, mostly arabica beans, a variety widely used in premium/specialty coffees. Coffee output is reported in 60kg bags of unroasted coffee. Brazil’s production is 63 million bags. Vietnam is next at 18% (31.7 million 60kg bags), driven largely by robusta beans. Third place is held by Colombia (12.5) and Indonesia (12.4), both at 7%.
Grid Guardrail
To solve rising electricity prices for consumers stemming from the growth of energy-hungry AI data centers, make data centers the first group subject to power cuts during grid stress. This will strongly encourage data centers to bring their own power and thereby protect existing rate payers from higher prices. It might also prevent existing power generating firms from profiting from higher prices by not increasing risk and building out capacity.
Changes in Landmark Housing Law
The newly enacted 21st Century ROAD to Housing Act directs the Department of Housing and Urban Development to develop voluntary federal guidelines for state and local zoning best practices. Although not mandatory, the guidelines will help shape how communities are evaluated for federal grants and give states a model for developing their own enabling legislation.
These land-use and development provisions are especially important to NAHB members because many state and local zoning rules restrict home building and raise costs. By creating land-use and zoning guidelines with input from a national task force of planning, housing, transit, academic and building experts, this landmark housing law aims to remove regulatory barriers and increase housing production across all income levels.
The following land-use provisions in the 21st Century ROAD to Housing Act are most important to NAHB members:
Section 107: Housing Supply Frameworks
This provision directs HUD to develop national best practices for state and local land-use and zoning reforms that can increase housing production.
The framework will examine many barriers NAHB members face every day, including minimum lot sizes and parking requirements, density and height limits, discretionary approvals, lengthy review timelines, impact fees, environmental reviews and obstacles to missing middle housing.
The legislation also requires home builders and housing developers to be included in HUD’s stakeholder process, giving the industry a direct role in shaping these recommendations.
The voluntary framework could give states, localities and HBAs a valuable tool for advancing pro-housing land-use reforms in their communities.
HUD must publish the best practices within three years, following a two-year stakeholder consultation process.
Section 213: Build Now Act
This provision creates a pilot program that uses Community Development Block Grant (CDBG) funding to encourage eligible communities to increase housing production. Beginning in the third full fiscal year after enactment, communities with housing growth improvement rates at or above the median would receive additional CDBG funding, while eligible communities below the median would see their allocations reduced by 10%.
The program exempts certain communities, including those with relatively affordable housing, above-average rental vacancy rates, recent major disasters, or no legal authority to change zoning and permitting rules. HUD must also provide guidance on policies that reduce regulatory barriers and increase housing supply.
Section 209: Accelerating Home Building Act
This provision establishes a grant program to help local governments, tribal governments and municipal organizations select and adopt pre-reviewed housing designs, or “pattern books,” for small-scale, mixed-income housing. Eligible designs include ADUs, duplexes, triplexes, fourplexes, townhomes, cottage courts and other low- and mid-rise buildings of up to 25 units. The plans would be reviewed for compliance with local building and permitting standards, creating a more predictable and faster approval process for qualifying projects.
Grant recipients must track the number of permits issued and housing units built using the designs, while HUD will collect and share successful approaches as national best practices.
HUD must establish the grant program for state and local governments that use pattern books, and Congress must fund it, but the law does not set a deadline for HUD to launch the program.
Section 208: Innovation Fund
This provision creates a competitive grant program to reward communities that have achieved measurable housing-supply gains and help them sustain that progress. Eligible communities may use the flexible funding for housing and community development, infrastructure investments and other initiatives that expand attainable housing.
The legislation recognizes pro-housing reforms such as expanding by-right development, reducing parking and minimum lot-size requirements, increasing density, streamlining permitting and environmental reviews, allowing more ADUs, and reforming zoning codes.
HUD must prioritize communities that demonstrate innovative housing-supply policies and clear improvement in housing growth.
