Headline figures mask weakness in housing

August 19, 2025

New home construction, also known as housing starts, jumped 5.2% in July on stronger activity in the South and Midwest. Starts were 12.9% higher than a year ago.

Single-family starts rose 2.8%. All of the activity came from the South, the largest housing market by volume. The region enjoys lower costs for land compared to other parts of the country and much less strict zoning regulations. Over half of all newly built single-family homes are in the South.

Mortgage rates were slightly lower at the start of July but climbed to 6.75% by mid-month, further constraining demand. Sidelined buyers are being offered mortgage rate buydowns and other discounts but affordability challenges are compounding. According to Fannie Mae, three-quarters of households believe now is a bad time to buy a house.

Multifamily starts jumped 11.6% but the series are volatile; starts were up 2.9% on a three-month-moving average. Construction of apartments is picking up after builders paused to complete record levels of backlog. About 385,000 units will be completed this year, a nearly 30% drop from a year ago. Since demand for apartments remains strong even in the face of increased supply, that slowdown will translate to higher rents, especially in regions with less building.

Building permits, which indicate builders’ future construction plans, fell 2.8% in July and 5.7% from a year ago. According to the National Association of Home Builders, builders have been pessimistic about future sales prospects and current foot traffic. The sentiment index moved even lower in August, signaling continued challenges ahead.