The fallout from the escalating war with Iran is no longer confined to what Americans are paying at the gas pump or geopolitics. There are growing signs that it is directly impacting the U.S. housing market.
KB Home became one of the first major homebuilders to explicitly link the conflict to weakening demand, cutting its full-year outlook after softer-than-expected sales in early March.
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On March 24, the company reported first-quarter revenue of $1.08 billion, down 23 percent year over year, and lowered its delivery forecast, citing slowing buyer activity and growing uncertainty tied to the war.
KB Home’s executive management has observed “tepid consumer confidence, elevated mortgage interest rates and affordability pressures” as stifling consumer demand in the near term.
Executives pointed directly to geopolitical instability several times throughout the earnings call as a new headwind layered on top of an already fragile housing market.
“As we get into the early part of March, there’s a lot of noise out there,” CEO Rob McGibney said in the earnings call. “And we mentioned in our prepared remarks that this conflict in the Middle East started right at the end of February.”
McGibney continued that the last couple of weeks prior to the release of the earnings report had been “a little softer than what we would like to see or what we normally get this time of year.”
“And we just don’t have a lot of visibility right now, as I don’t think anybody does into how long this conflict may go on, and how it’s going to impact consumer psyche and confidence,” he said. “But we feel that right now, it’s weighing on the consumer.”
Profitability erodes as costs rise, sales slow
KB Home’s first-quarter results reflected multifaceted pressure across its business, with home deliveries declining 14 percent to 2,370 units.
The average selling price dropped to $452,100 from $500,700, contributing to a sharp contraction in profitability. Homebuilding operating income fell to $33 million, down from $127.3 million a year earlier, as margins compressed and expenses took a larger share of revenue.
The company’s housing gross profit margin declined to 15.3 percent from 20.2 percent, driven by price reductions, higher land costs, shifting geographic mix and weaker operating leverage.
Meanwhile, selling, general and administrative expenses rose to 12.2 percent of housing revenue, up from 11 percent, reflecting lower volume despite some benefit from insurance recoveries.
Net income dropped to $33.4 million from $109.6 million, with diluted earnings per share falling to $0.52 from $1.49, while financial services income also declined due to lower loan origination volume tied to fewer home closings.
‘Another layer of uncertainty’
Executive Chairman Jeffrey Mezger emphasized that the company has returned to a predominantly built-to-order sales mix, a strategic shift he described as foundational to its long-term positioning. Mezger said that the company expects those homes to account for roughly 70 percent of deliveries in the second half of 2026.
That transition is expected to expand KB Home’s backlog, which executives view as a key advantage in a volatile market. A larger pipeline of sold-but-not-yet-built homes provides greater visibility into future deliveries and typically carries higher margins — often 300 to 500 basis points above speculative inventory sales.
Financially, KB Home reported earnings per share of $0.52, while maintaining what Mezger described as a “balanced” capital allocation strategy. The company returned nearly $70 million to shareholders through dividends and stock buybacks, repurchasing 843,000 shares at prices below book value and pushing book value per share above $61.
“Against this backdrop and taking into consideration that our net orders in the first quarter were below the level we needed to hold our prior year — our prior full year delivery guidance, we are lowering our range for the year,” Mezger said.
The macro backdrop is becoming more challenging for KB Homes, as it has for all homebuilders.
“Consumers have been faced with a variety of challenges over the past two years, and the conflict in the Middle East has added another layer of uncertainty,” Mezger said.
Are materials costs the next pressure point?
KB Home is also seeing early signs of cost volatility re-emerge, even as it continues to drive structural efficiencies across its operations. McGibney said the company has made “good progress” on controllable costs through value engineering, contract renegotiations and rebidding efforts, moves he characterized as lasting improvements to the business.
However, he flagged renewed pressure on materials — particularly lumber — which has begun to tick up in recent weeks.
“We’ve got various locks in a lumber strategy where we have different lock periods for different divisions,” McGibney said, noting that future costs could swing in either direction depending on how prices move as those contracts reset.
Even amid emerging cost pressures, KB Home executives said they remain confident in their ability to navigate volatility. McGibney described the company’s current cost strategy as “sound,” noting that any near-term increases are unlikely to materially impact overall performance and could be offset by continued efficiency gains elsewhere in the business.
The bigger unknown, he suggested, is the potential downstream impact of the conflict in the Middle East.
“As far as the impact of the situation in the Middle East, it’s just really difficult to tell,” McGibney said. “With oil prices being higher, certainly, that can bleed into land development and vertical construction. And then a lot of the products that go into a home, there’s petroleum that’s involved in those products at some point.”
McGibney emphasized that those risks remain largely theoretical for now. While the company is preparing to counteract any increases through proactive cost controls, he said there has been no measurable impact to date.
“We haven’t seen it yet,” he said. “It hasn’t shown up yet in our cost.”
The war’s impact on mortgage rates
The conflict in Iran is also pushing mortgage rates higher at a critical moment for homebuyers.
As Inman reported on March 27, rates have surged in recent weeks amid market reactions to the escalating military campaign in Iran. That shift has coincided with a sharp rise in energy prices. The timing is especially consequential, arriving just as the spring homebuying season begins.
Only a month ago, mortgage rates had dipped to their lowest level in more than three years. That momentum has quickly reversed. According to Mortgage News Daily, rates climbed from 5.99 percent in late February to 6.62 percent by March 27.
The impact on affordability has been immediate. A buyer targeting a median-priced home with a 20 percent down payment would now see their purchasing power reduced by more than $21,000, with no change in their monthly budget.
Inman has created an interactive tool to show you how much purchasing power the ongoing rate spike has eroded.
