US housing starts plummeted 8.5% in August to 1.307 million units on a seasonally adjusted annual rate, marking the lowest level since May and continuing a disappointing summer for homebuilders. The decline reflects multiple challenges facing the construction industry, including high home prices, restrictive regulations, labor shortages, and uncertainty about tariffs affecting building costs. Single-family starts fell 7.0% while multi-family construction dropped 11.7%.
Broad-based decline affects all sectors
New home construction closed out a disappointing Summer by dropping 8.5% in August to the lowest level since May in what continues to be a difficult environment for developers, according to FT Portfolios. Looking at the big picture, homebuilders face a number of headwinds: the largest completed single-family home inventory since 2009, high home prices, restrictive government regulations, stricter immigration enforcement, making it difficult to find or replace workers, and the uncertainty of tariffs and how they’ll affect building costs.
All of this has translated into building rates reminiscent of 2019—no growth in over five years. Digging into the details of the report, the drop in August was broad-based, with single-family starts falling 7.0% to the lowest level in more than a year, and multi-family starts (which have helped lift overall construction in recent months) retreating 11.7% to a three-month low.
Permits signal continued weakness ahead
Meanwhile, permits for new builds continue to lag, falling 3.7% in August to a 1.312 million annual rate, the slowest pace excluding the COVID shutdown months since 2019. Building permits issued in August decreased to 1,312,000 (SAAR). That’s 3.7% below the revised July rate and 11.1% lower than a year ago, according to Zillow Research.
Housing starts decreased to 1,307,000 (SAAR) in August, down 8.5% from the revised July estimate and is 6% lower than a year ago, according to the U.S. Census Bureau. Single-family housing starts decreased to 890,000 (SAAR) in August, decreasing 7% from the July estimate and 11.7% lower than in August 2024.
Builders focus on completing existing projects
One way homebuilders have been combating sluggish activity is by focusing their efforts on completing projects. That was the case in August, as new home completions jumped 8.4% to a 1.608 million annual rate, which has now outpaced starts and permits in eleven out of the last twelve months.
With strong completion activity and tepid growth in starts, the total number of homes under construction has fallen 13.3% in the last twelve months. In the past, like in the early 1990s and mid-2000s, this type of decline was associated with a housing bust and falling home prices. But with the brief exception of COVID, the US has consistently started too few homes almost every year since 2007.
Market conditions remain challenging
Housing starts decreased in August. Slowing price growth, weaker-than-expected sales, and rising input costs are dragging down builder confidence. Permitting activity remains weak and points to sluggish new home construction. With so many homes already under construction in a rapidly slowing economy, builders are remaining on the sidelines.
In August, single-family permitting activity was down in every region except the Midwest, where housing remains relatively more affordable. The silver lining: Mortgage rates have eased somewhat since May, which could help push some buyers over the edge of affordability and support home sales in the coming months.
The negative turn in the August housing starts highlights the difficult season that the homebuilders are in when they have to deal with several headwinds due to regulatory barriers and labor constraints. Although there has been a slight improvement in mortgage rates in the recent period when compared to May, the construction industry is still grappling with high prices and poor demand. The attention to the development of the current projects, as opposed to the creation of new ones, indicates that builders are not very optimistic about the situation in the market.