Iran war adds to U.S. housing woes as Trump faces midterm pressure
Mortgage rates, construction costs and fuel prices are squeezing buyers and builders, while homebuilder confidence has fallen to its lowest level since 2012. The housing slowdown is adding to the affordability pressures confronting Trump ahead of November’s elections.
As the United States approaches its November midterm elections, the economic fallout from the war with Iran is being felt not only at gas stations but also in the housing market. With fuel prices, mortgage rates and construction costs rising, homebuyers and builders are facing mounting pressure. Meanwhile, approval of President Donald Trump’s performance has reportedly fallen to a new low of 37%.
The housing market has been hit by a combination of rising costs and weakening demand. Disruptions to oil shipments have added to inflationary pressures and pushed up borrowing costs, while construction materials have become more expensive. At the same time, homebuilder confidence has fallen to its lowest level in more than 14 years.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index, which measures builders’ confidence in the market for newly built homes, fell to 29 in October, its lowest reading since June 2012. Builders have cited labor shortages linked to the Trump administration’s stricter immigration enforcement, as well as a 28.8% year-over-year increase in construction material prices in September.
The monthly index is based on a survey of homebuilders. A reading of 29 reflects deeply pessimistic sentiment about market conditions.
Financing costs are adding to the strain. The average rate on a 30-year fixed-rate mortgage recently climbed to 7.4%, its highest level in nearly three years, according to mortgage company Freddie Mac. Higher borrowing costs, which have risen alongside U.S. Treasury yields amid inflationary pressures linked to the war, are making home purchases more expensive and increasing the cost of financing new construction.
"Builders are also contending with higher costs for construction loans, building materials and diesel, as well as persistent labor shortages," said NAHB chairman Bill Owens. "Nationwide, more than one-third of builders reported immigration enforcement activity in their market areas during the past month, causing construction delays and discouraging legal workers from reporting to work."
The industry is also grappling with an oversupply of newly built homes, prompting some builders to postpone projects and offer discounts to attract buyers.
In October, 43% of builders reported cutting prices, while the average discount remained at 6% for the seventh consecutive month. Sales incentives were used by approximately 65% of builders, a share that has remained above 60% for 19 consecutive months.
The measures have done little to revive demand. The index measuring prospective buyer traffic fell to 18 in October from 23 in September, its lowest level since the beginning of the year. The index tracking builders’ sales expectations for the next six months also declined, dropping to 32 from 37 in September. In January, it stood at 49.
"Higher mortgage rates, elevated construction costs and weaker consumer confidence are keeping more buyers on the sidelines," said Robert Dietz, NAHB chief economist. "As a result, buyer traffic has fallen to its lowest level since April 2012, excluding the pandemic's onset in April 2020."
The weakness extends beyond newly built homes. According to real estate firm Redfin, sales of existing homes fell 4% in September from the previous month, reaching a 14-year low. Meanwhile, 14.5% of transactions fell through, the highest rate ever recorded, according to the company’s figures. The steepest sales declines were reported on the West Coast, particularly in Seattle, Los Angeles and San Diego.
The housing slowdown is adding to the cost-of-living debate ahead of the November 3 midterm elections. Higher mortgage payments and home prices are squeezing household budgets, while rising fuel costs and broader inflation are leaving consumers with less money for nonessential spending.
The combination of expensive financing, construction costs and weak buyer confidence is making a recovery increasingly difficult. Even as builders offer discounts and other incentives, prospective buyers remain reluctant to enter the market.
Analysts see little prospect of a near-term turnaround. Sarah Godfrey of Oxford Economics expects the housing market to remain stagnant through 2027. Goldman Sachs similarly forecasts that demand will remain “tepid” and that sales of existing homes will decline in the coming months.
