Homebuilders See Material Costs Jump 6.7% in a Year, Squeezing Profit Margins

The cost of key materials used for building homes has increased by 6.7% over the previous year, according to a new survey.

Homebuilders who responded to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) survey for July 2026 reported steep increases in material costs, with smaller builders absorbing the biggest hit.

In the survey, 28.4% said that materials increased by 5% to 9.99%, while 22.4% reported less than 5% change, and 22.1% indicated a 10% to 14.99% increase. Overall 72.9% of builders reported that their cost of materials increased by up to 15% over the past year.

Trent Klatte, CEO and co-founder of Los Angeles-based real estate and construction firm West End Construction, tells Realtor.com® he has seen changes to a number of expenses since 2020.

Everything from imported materials to gas, fuel, and oil have been hit with major inflation. Los Angeles has the added strain of rebuilding from wildfires, which has driven up prices due to demand for materials and labor. Despite these cost increases, Klatte says he’s maintaining his business’ security—that security just means he passes on some projects.

“Our margins haven’t necessarily been impacted, but securing new projects has become more challenging,” Klatte says. “We’re not going to reduce our margins just to take on a project that doesn’t meet our requirements. With increased costs and inflation, there’s still a disconnect between what clients expect construction to cost and what it actually costs today.”

Smaller builders may be disproportionately affected by the increased cost of materials, the HMI survey found. It reported that builders who started five or fewer homes in 2025 saw a 9.1% median annual increase in material prices, while builders who started 100 or more homes saw only a 1.8% increase.

This could be due to larger builders being able to stockpile materials and locking in prices by signing long-term contracts with suppliers, according to Paul Emrath of NAHB’s Eye On Housing blog.

However, Klatte says that many smaller independent builders are fostering similar relationships to protect themselves from rising costs.

“In our experience, there are strategies we can use to manage some of that volatility, particularly by developing strong relationships with suppliers and trade partners and negotiating longer-term pricing,” says Klatte, whose company begins work on approximately 15 homes per year. “I know other smaller independent general contractors who have been able to lock in pricing with suppliers for extended periods.

“While material cost increases are certainly a challenge for independent builders, establishing strong supplier relationships and securing pricing in advance can help mitigate some of that impact,” he continues.

Despite the continued increase in construction materials, the median sales price of a new home fell in July to $393,800, according to reports from the U.S. Census Bureau and the Department of Housing and Urban Development. This figure is down 2.3% from the prior month and the lowest median sales price since July 2021.

Meanwhile, sales of newly built homes are weakening. In July, contract signings for newly built homes dropped 10.5% from the prior month to a seasonally adjusted annual rate of 607,000. That number is also down 6.3% from the same period a year ago.

These factors have led to an impact on the number of newly built homes. Single-family housing starts in July were down 9.9% from June and dropped 15.7% from a year earlier, the Census Bureau’s residential construction report found.

“It’s a great time to be buying a newly built home. It’s a tougher time to be building and selling them,” says Realtor.com senior economist Joel Berner. “Builders are facing increased costs from tariffs, labor shortages, and overall price increases at the same time that buyers are proving to be quite wary and quite demanding of concessions. This is why we see new-home starts falling, as builder margins are being compressed from both sides.”

Because the sales of new homes have slowed, some builders are hesitating to complete homes that don’t have buyers already lined up, Berner says. Instead, they lean toward selling homes that are still in the planning stage.