Last updated: May 21, 2026

Construction Costs Spike at 12.6% Annualized Rate as Tariffs Hit Building Materials

Construction costs surged at a “staggering” 12.6% annualized rate during the first two months of 2026, according to data reported by Construction Dive. While year-over-year input prices are up a more modest 3.1% since February 2025, the early-2026 acceleration has alarmed industry leaders.

Tariffs Are a Major Driver

Trade tariffs on imported building materials are a key factor behind the spike. Steel, lumber, and other critical construction inputs have all seen price increases tied to tariff policies, according to Engineering News-Record’s Q1 2026 Cost Report.

“There is a limit to how many price increases the market can absorb before owners put projects on hold,” said Jeffrey D. Shoaf, CEO of the Associated General Contractors of America, in a statement reported by Inman. “Reducing uncertainty around tariffs and stabilizing supply chains would go a long way toward helping contractors keep projects moving forward.”

What This Means for Home Prices

Rising construction costs have a direct impact on new home prices. Builders cannot absorb indefinite cost increases — they either raise prices, reduce quality, or stop building. All three outcomes are bad for home buyers.

The timing compounds the challenge. With new home inventory already at a 9.7-month supply, builders are caught between rising costs and a market that is resisting higher prices. Some may choose to delay projects entirely rather than build at a loss.

Broader Economic Impact

The construction industry faces additional headwinds beyond tariffs. Slow project starts, shrinking backlogs, and supply chain disruptions continue to create uncertainty about the outlook for the rest of 2026, according to CRE Daily.

For the housing market, this means fewer new homes being built at a time when the country still faces a structural housing shortage estimated at millions of units.

What Buyers Should Consider

Buyers looking at new construction should factor in the possibility of further price increases. Locking in a contract now — especially with builders offering incentives — could mean getting a better deal than waiting. For existing homeowners, rising construction costs also mean renovation projects are getting more expensive, making cash-out refinancing or home equity loans worth comparing now.

Reviewed by Jordan Reyes, CFP®. Jordan Reyes, CFP®, is a certified financial planner with 12 years of experience in consumer borrowing, debt repayment, and credit-building strategies. Last reviewed May 2026.