Home Construction Drops as Builders Confront Higher Mortgage Rates

Construction of new single-family homes faced a reversal in September following a brief August rebound, the U.S. Census Bureau reported Tuesday.

Single-family housing starts fell last month to a seasonally adjusted annual rate of 859,000, down 4.6% from August's 900,000, which has been revised down from 918,000.

While the September pace was up 2.6% year over year, the comparison comes against 2025's multi-year low.

Total privately owned housing starts, including multifamily units, in September fell 5.2% month over month and 7.4% year over year to an annualized 1.22 million units.

Meanwhile, new building permits edged 0.2% below the revised August rate, to 1.4 million annualized and were 3% lower than the September 2025 rate. There were 845,000 single-family authorizations, down 4% from August.

At the same time, housing completions decreased 2.2% from August and 14% compared to last year.

These results highlight a cooling housing market as mortgage rates top 7%, keeping many would-be buyers firmly on the sidelines, and forcing builders to offer more price cuts and buyer incentives just to get new inventory moving.

Last week, Freddie Mac reported that the average rate on 30-year fixed home loans was at 7.4%, pushed up by high 10-year Treasury yields amid global inflation fears and war-related oil shocks.

On Monday, the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) plunged to a 14-year low, reflecting the industry's growing pessimism.

"The market is not conducive to building right now, and the diminished starts and completions figures make that clear," notes Realtor.com® economist Joel Berner. "However, the relative resiliency of new home permitting shows that builders see these conditions as temporary."

Permits and completions

Permitting was strongest in the multifamily segment, with permits for units in projects of five units or more growing 5.9% month over month and 1% year over year.

"When building costs are high, like they currently are due to tariffs on construction materials and a shortage of construction labor, larger projects with higher margins are more appealing," explains Berner.

Regionally, the Midwest posted the only gain in permits year over year, at 4.4%, but this was also driven entirely by multifamily projects, as single-family permits fell 6.9% from last September.

Nationwide asking rents have been falling for 38 consecutive months, but the September data suggests that builders think this trend may be bottoming out, as they turn their attention to more multifamily projects. 

Housing starts show a different pattern, with multifamily projects posting a 7.2% decline month over month and a 25.9% decline year over year.

At the regional level, housing starts in the South increased 6.1% month over month and 11% year over year.

"The South is the region that sees the lion’s share of new construction activity, but softness in the other regions dragged the national figure down," says Berner.

Completions had a month-over-month gain in the multifamily segment of 14.9%, but the economist stresses that this compares against an especially soft August. The year-over-year change was -20.4%. Meanwhile, single-family completions dropped 2.4% month over month and 11% year over year.

The gap between permits and completions has grown large: In September, there were 1.4 million permits compared to 1.19 million completions, signaling that builders are waiting for market conditions to improve before finishing their projects.

What this means for buyers

"Builders are facing some challenges, and this month’s new construction data shows that clearly," says Berner. "On the flip side, buyers hold the negotiating power in the new home market and can find some exceptional deals on new homes."

Mortgage rates certainly erode buying power, but Realtor.com research shows that new-home buyers, who often take advantage of reduced rate offerings from builders, pay as much as a full percentage point less on their mortgage.

The median new-home sale price is less than the median existing home sale price, and new construction buyers benefit from a lower total cost of ownership over their time in the home.

"New construction should absolutely be on the radar of any prospective homebuyer," concludes Berner.