U.S. housing starts fell 12.4 percent in July, according to Census Bureau data released Tuesday, underscoring the pressure facing homebuilders as high borrowing costs and weak affordability continue to weigh on demand.
But the national number only tells part of the story. Housing conditions have diverged sharply across the country, with builders pulling back in some Sun Belt and Mountain West markets where years of heavy construction have helped push inventory higher, while housing supply remains comparatively tight across much of the Midwest and Northeast.
Overall housing starts fell to a seasonally adjusted annual rate of 1.239 million in July, down from 1.415 million in June and 13.5 percent from a year earlier, according to the Census Bureau and HUD. Single-family starts fell 9.9 percent from June and 15.7 percent from a year earlier to an annualized rate of 808,000. Single-family construction is now down 6.9 percent year to date, according to Census data.
The National Association of Home Builders reported Monday that builder confidence remained deeply subdued in August, with weak prospective-buyer traffic and widespread use of price cuts and incentives. NAHB also calculated that the three-month moving average for single-family starts fell to 865,000.
Robert Dietz | National Association of Home Builders
Robert Dietz, NAHB’s chief economist, wrote Monday that spec home construction remains weak as many potential buyers stay on the sidelines amid elevated mortgage rates and rising construction costs.
Builders are continuing to use discounts and other concessions to stimulate demand: 35 percent reported cutting prices in August, with an average reduction of 6 percent, while 63 percent reported using sales incentives. August also marked the 16th straight month in which at least 30 percent of builders reported cutting prices.
Builders are slowing down, not shutting down
Despite the sharp drop in starts, Tuesday’s report contained one notable sign that builders have not abandoned future projects. Building permits rose 5 percent in July to an annualized rate of 1.443 million. Single-family permits increased 2.5 percent to 894,000 and were 1.1 percent higher than a year earlier.
Odeta Kushi | First American Deputy Chief Economist
Odeta Kushi, deputy chief economist at First American, characterized the divergence as a sign that builders remain willing to prepare projects but are reluctant to commit to construction until demand improves.
“Builders are keeping projects moving, but they’re not ready to bet on them yet,” Kushi said in a news release. “Until affordability improves and buyers come back more convincingly, homebuilding is likely to remain cautious.”
But Kushi cautioned against reading too much into a single month’s improvement, particularly with new-home supply remaining elevated.
“With plenty of new homes already available relative to the current pace of sales, builders have little reason to push production much higher until that inventory comes down or demand improves,” Kushi said.
The number of homes already under construction has also been shrinking.
There were 1.26 million housing units under construction in July, down 6 percent from a year earlier, according to NAHB’s analysis of the Census data. Single-family homes under construction declined 7.2 percent to 579,000 units, while multifamily units under construction totaled 683,000, well below the more than 1 million units under construction at the sector’s December 2023 peak.
Regional supply tells a different story
The construction slowdown is playing out unevenly across the country, reflecting the very different supply conditions builders face from one market to another.
Sellers in metros like Austin, San Antonio, Tampa, Dallas and Denver were among the most motivated in the country, with more than half of active listings in each market receiving price cuts. In Texas, builders accounted for nearly 30 percent of homes for sale, helping add to the supply buyers can choose from, Parcl Labs co-founder Jason Lewris told Inman in July.
That dynamic has given buyers more leverage in many Sun Belt and Mountain West markets that experienced heavy pandemic-era construction, while inventory remains tighter across much of the Northeast and Midwest. Tuesday’s data showed that divide continuing.
Year to date, total housing starts were up 11.7 percent in the Northeast but down 3 percent in the South, 3.8 percent in the West and 4.5 percent in the Midwest. Total permits were up 14.3 percent in the Northeast and 2.6 percent in the Midwest, but down 4.7 percent in the South — a notable reversal for a region that led much of the nation’s post-pandemic construction boom.
For builders nationally, the picture remains mixed. Starts have weakened as affordability and inventory pressures weigh on demand, but the rebound in permits suggests builders are still positioning for future buyers rather than abandoning new projects altogether.
