Waiting for rates to fall is a bet that building costs will hold still

10. An April 7 ceasefire halted major combat and reopened the Strait, and by late June prices had returned to near pre-war levels. Renewed strikes in July pushed Brent above $76.

Oil round-tripped. The inflation picture did not.

The 10-year Treasury note, which mortgage rates track more closely than they track the Fed, sat below 4 percent before the war. It closed at 4.80 percent on Monday, the highest since January 2025. The 30-year bond reached 5.32 percent, a 19-year high.

Assigning that to Iran alone would be too simple. Safe-haven buying pushed yields down while inflation fears pushed them up, and expectations of heavier federal borrowing added a third pressure. Inflation had been accelerating for six months before the first strike. A weak jobs report landed in the same week as the March spike. In early April, mortgage rates fell as yields dropped, and the reason given was investor worry about the same conflict. The war has been a contributor, mostly through energy feeding inflation, not a single cause.

Federal Reserve projections released in June showed an increase more likely than a cut this year, and as of Sept. 1 markets were pricing roughly a 68 percent chance of a quarter-point hike this month. The Mortgage Bankers Association expects the 30-year fixed to average 6.5 percent in 2026, 2027 and 2028. The consensus is not that rates fall. It is that they hold.

Now the other number.

The price of combined inputs to residential construction has risen 40 percent since January 2020, according to the Harvard Joint Center for Housing Studies. Gypsum is up 47 percent. Steel mill products are up 84 percent through April 2026. That is not a war shock. It is a six-year climb out of pandemic supply disruption, extended by tariffs on steel, aluminum and copper.

Materials do not round trip. Oil fell back to where it started inside of four months. Drywall did not.

That gap lands hardest on the smallest projects, which is where a growing share of homeowners are building. At least eighteen states now broadly allow homeowners to add an accessory dwelling unit, the backyard cottages and garage conversions most zoning codes banned for decades. Eleven of those laws passed in the last four years, according to a Mercatus Center taxonomy. California went from 1,336 ADU permits in 2016 to 26,924 in 2023, more than 21 percent of all homes permitted statewide, according to the California Department of Housing and Community Development. In San Diego County, ADU completions rose from 342 in 2020 to 1,984 in 2024, according to a Center for Housing Policy and Design analysis of state data.

A small unit is the worst possible shape for absorbing materials inflation. A 500-square-foot cottage still needs a full kitchen, a full bathroom, a service panel, a water heater and a connection to the septic or sewer system. Those systems do not shrink with the floor plan, and they sit in the categories that have risen most, which is why cost per square foot is a misleading number on this kind of work.

Taylor Nester is the general contractor at Nester Construction Inc., a Pismo Beach, California, firm that builds custom homes. He came up under his father, Greg Nester, who built custom homes and subdivisions in the same market for decades.

“The most valuable decisions are often made before anyone begins building,” Nester said. “Good pre-construction gives the client clarity and allows the entire team to move forward with purpose.”

The variables that move a budget are specific to the parcel, he said.

“You cannot approach every property with the same template,” Nester said. “Our role is to understand the site, explain what is realistically possible and develop a project that supports the client’s goals.”

The two rates of change are closer than they look. On a

On Feb. 27, 2026, the average 30-year fixed mortgage sat just under 6 percent, the lowest since September 2022. The next day the United States and Israel began strikes on Iran, Iran moved to close the Strait of Hormuz, and every forecast for the year went out the window.

Six months later the rate is 6.66 percent, according to Freddie Mac. It has not come back.

Oil did. Brent crude ran from about $72 the day before the war to roughly $110. An April 7 ceasefire halted major combat and reopened the Strait, and by late June prices had returned to near pre-war levels. Renewed strikes in July pushed Brent above $76.

Oil round-tripped. The inflation picture did not.

The 10-year Treasury note, which mortgage rates track more closely than they track the Fed, sat below 4 percent before the war. It closed at 4.80 percent on Monday, the highest since January 2025. The 30-year bond reached 5.32 percent, a 19-year high.

Assigning that to Iran alone would be too simple. Safe-haven buying pushed yields down while inflation fears pushed them up, and expectations of heavier federal borrowing added a third pressure. Inflation had been accelerating for six months before the first strike. A weak jobs report landed in the same week as the March spike. In early April, mortgage rates fell as yields dropped, and the reason given was investor worry about the same conflict. The war has been a contributor, mostly through energy feeding inflation, not a single cause.

Federal Reserve projections released in June showed an increase more likely than a cut this year, and as of Sept. 1 markets were pricing roughly a 68 percent chance of a quarter-point hike this month. The Mortgage Bankers Association expects the 30-year fixed to average 6.5 percent in 2026, 2027 and 2028. The consensus is not that rates fall. It is that they hold.

Now the other number.

The price of combined inputs to residential construction has risen 40 percent since January 2020, according to the Harvard Joint Center for Housing Studies. Gypsum is up 47 percent. Steel mill products are up 84 percent through April 2026. That is not a war shock. It is a six-year climb out of pandemic supply disruption, extended by tariffs on steel, aluminum and copper.

Materials do not round trip. Oil fell back to where it started inside of four months. Drywall did not.

That gap lands hardest on the smallest projects, which is where a growing share of homeowners are building. At least eighteen states now broadly allow homeowners to add an accessory dwelling unit, the backyard cottages and garage conversions most zoning codes banned for decades. Eleven of those laws passed in the last four years, according to a Mercatus Center taxonomy. California went from 1,336 ADU permits in 2016 to 26,924 in 2023, more than 21 percent of all homes permitted statewide, according to the California Department of Housing and Community Development. In San Diego County, ADU completions rose from 342 in 2020 to 1,984 in 2024, according to a Center for Housing Policy and Design analysis of state data.

A small unit is the worst possible shape for absorbing materials inflation. A 500-square-foot cottage still needs a full kitchen, a full bathroom, a service panel, a water heater and a connection to the septic or sewer system. Those systems do not shrink with the floor plan, and they sit in the categories that have risen most, which is why cost per square foot is a misleading number on this kind of work.

Taylor Nester is the general contractor at Nester Construction Inc., a Pismo Beach, California, firm that builds custom homes. He came up under his father, Greg Nester, who built custom homes and subdivisions in the same market for decades.

“The most valuable decisions are often made before anyone begins building,” Nester said. “Good pre-construction gives the client clarity and allows the entire team to move forward with purpose.”

The variables that move a budget are specific to the parcel, he said.

“You cannot approach every property with the same template,” Nester said. “Our role is to understand the site, explain what is realistically possible and develop a project that supports the client’s goals.”

The two rates of change are closer than they look. On a $250,000 loan at 30 years, cutting the rate from 6.66 percent to 6.16 percent lowers the monthly payment by about 5 percent. Residential construction inputs have risen at roughly 5.5 percent a year, compounded, over the period covered by the Harvard figures. The percentages are strikingly similar, though they apply to different sides of a homeowner’s budget. Waiting for cheaper financing does not mean the project itself is standing still.

Borrowers may eventually refinance if rates fall. Materials already purchased and labor already performed cannot be repriced after the fact.

Another escalation would move energy prices and Treasury yields again. But the past six months offer a measure of proportion. Neither number reversed, and the forecasts point sideways rather than down.

Waiting is not a neutral act. It is a bet that one number falls faster than the other rises.

50,000 loan at 30 years, cutting the rate from 6.66 percent to 6.16 percent lowers the monthly payment by about 5 percent. Residential construction inputs have risen at roughly 5.5 percent a year, compounded, over the period covered by the Harvard figures. The percentages are strikingly similar, though they apply to different sides of a homeowner’s budget. Waiting for cheaper financing does not mean the project itself is standing still.

Borrowers may eventually refinance if rates fall. Materials already purchased and labor already performed cannot be repriced after the fact.

Another escalation would move energy prices and Treasury yields again. But the past six months offer a measure of proportion. Neither number reversed, and the forecasts point sideways rather than down.

Waiting is not a neutral act. It is a bet that one number falls faster than the other rises.