Rewrites throughout, adds share moves in paragraph 5

May 20 (Reuters) - James Hardie Industries JHX.AX forecast annual earnings below market expectations on Wednesday, as inflation and housing affordability pressures hit homebuilding activity in its key North America region.

The soft outlook from one of the world's top fibre cement makers underscores the pressure facing building materials manufacturers due to elevated mortgage rates, house prices, and stretched affordability, weighing on new construction and repair-and-remodel activity.

Elevated energy prices due to the U.S.-Israeli war with Iran are also weighing on household budgets, prompting homeowners to defer large-ticket renovation projects.

"The operating environment remains uncertain. We are not assuming a market recovery," finance chief Ryan Lada said in a statement.

The company's Australia-listed shares reversed early gains to fall as much as 5.1% to A$25.41, hitting their lowest level in seven weeks.

The stock has shed about 45% since it announced the acquisition of U.S. decking and exteriors firm AZEK in March last year.

The Dublin-based company projected net sales of $5.25 billion-$5.41 billion for the year through to March 2027, and total adjusted operating earnings of $1.45 billion-$1.50 billion. Both ranges fell short of the Visible Alpha consensus at the midpoint.

Group net sales for the year ending March 31 jumped 25% to $4.84 billion, aided by contributions from AZEK that drove sales at its top money-making division, Siding & Trim, up 3%.

However, it fell short of Visible Alpha expectations of $4.85 billion, hurt by lower exterior and interior product volumes, weather-related volume headwinds, and affordability pressures.

Siding & Trim segment, which includes the legacy North America fibre cement business alongside operations from AZEK, reported a 5% decline in adjusted operating earnings for the year.

Its 2026 adjusted net income fell to $595.7 million from $644.3 million a year ago, only marginally below the Visible Alpha consensus estimate of $597.7 million.

"Market conditions remained challenging, with subdued building activity and ongoing affordability pressures," the company said.