Housing starts plummet 8.5% in August: Builder confidence wanes amid market challenges

As builder confidence remains stagnant in the face of weaker homebuyer demand, builders are pulling back on construction. August housing starts declined 8.5% month-over-month to a seasonally adjusted annual rate of 1.307 million units, according to data released Wednesday by the U.S. Census Bureau. 

This figure also represents a 6.0% annual housing starts decline. Much of this annual decrease came from the single-family sector, which reported a seasonally adjusted annual rate of 890,000 units, down 11.7% year-over-year, while the multi-family sector rose 15.8% annually to a rate of 403,000 units. 

Builders also sought out fewer permits in August, with the seasonally adjusted annual rate falling to 1.312 million, down 3.7% from July and 11.1% annually. Both single family (856,000 units) and multi-family (403,000 units), reported declines, including 11.5% and 10.5% annual declines, respectively.

“Building permits are now at the lowest level since May 2020, during the height of the pandemic. To meet demand, the nation needs around 2 million new homes a year. Right now, building permits are an anemic 1.3 million,” Heather Long, the chief economist at Navy Federal Credit Union, said in a statement.

While none of this is good news for builders, for consumers in the market for a newly built single-family home, things are looking promising as the number of single-family home completions was up 6.7% month over month and 5.6% year over year to a seasonally adjusted annual rate of 1.09 million. In total, completions were at a rate of 1.608 million units in August, up 8.4% from July, but down 8.4% from a year ago, thanks to a 28.7% annual decline in multi-family completions, which came in at a rate of 503,000 units.

“Builders are holding back as the inventory of new homes for sale keeps growing and new home prices are stagnating, reflecting slower demand,” Lisa Sturtevant, the chief economist at Bright MLS, said in a statement. “A pullback in residential building activity has historically preceded an economic recession. Residential real estate is a key component of the U.S. economy, accounting for about 15-18% of Gross Domestic Product. When home building slows, it has a ripple effect across the economy. Declining new construction also reflects less consumer demand and indicates that overall consumer spending could be waning.”

Regionally, housing starts were up month-over-month in the Northeast (9.2%) and the West (30.4%), which had seasonally adjusted annual rates of 107,000 units and 313,000 units, respectively. The Midwest (220,000 units) and the South (667,000 units), posted monthly declines of 10.9% and 21.0%, respectively. On an annual basis, starts were down in the Northeast (-11.6%), and South (-13.0%), but up in the Midwest (5.3%), and West (6.5%).

“Housing unaffordability is a top issue on many young Americans’ minds. Lower mortgage rates would help, but the unaffordability crisis won’t end until more homes are built. The White House has hinted that they may declare a National Housing Emergency,” Long said. “The latest data suggest that would be wise. It will take a widespread effort at all levels of government and the private sector to address America’s housing shortage. The sooner we start, the better.”

Sturtevant is confident that at least some of these challenges will be lessened on Wednesday, with the Federal Reserve expected to cut rates by 25-basis points.

“Lower rates can help the homebuilding industry by lowering borrowing costs,” she said. “However, there are other important headwinds, including inflation, tariffs and slower demand, that will likely lead to continued sluggish housing construction through the end of the year.”