Rate hike hits frozen housing market

September 17, 2026

Housing starts fell 2.6% in August to a seasonally adjusted annual rate of 1.28 million, 1.2% below the year-ago level. July starts were revised up sharply, from 1.24 million to 1.31 million. June was revised up to 1.44 million. All regions except the West saw a slowdown in activity during August. 

Single-family starts rose 7.6% to 918,000, the highest in five months. The gains came from the Midwest, up 23.3%, and the West, up 28.6%, while the Northeast and South posted losses. The three-month-moving average rose just 1.1%. July's single-family reading was revised up 45,000 units to 853,000, which moves it off of the multi-year low in the initial report.  

Multifamily starts slumped 22.5% to 344,000 for buildings with five units or more. The series is historically noisy.  The three-month-moving average, a better gauge, rose 5%. All regions except the West reported declining activity. Multifamily homes under construction held nearly unchanged at 666,000, significantly below the record one million units started back in 2023.

Building permits, an indicator of future construction activity, fell 2.7% to 1.39 million in August, though they remain 3.5% above the year-ago level. Single-family permits fell 1.8% to 878,000; multifamily permits fell 3.1% to 467,000. The backlog of homes authorized but not yet started rose to 280,000, up 12.9% from a year ago. A permit grants approval to build, not a commitment on the part of builders to build. The backlog measures how many approved homes are sitting on the shelf waiting for a shovel; the stack is growing.   

Total home completions dropped 11.9% in August to 1.13 million, down 27.1% from a year ago. Single-family completions fell 10.4% to 816,000. That is now below single-family starts, reversing the finishing-faster-than-breaking-ground pattern that ran for three straight months. Builders are not finishing faster anymore; they are running out of things to finish.

Multifamily completions fell 15.9% to 302,000, down 35.7% from a year ago. Near-record apartment deliveries in 2024 held rents down across high-supply markets, particularly in the Sunbelt. That wave has crested and reversed. Fewer units arriving through 2027 will remove the supply cushion that contained rent growth, which feeds back into shelter inflation.  

Sentiment among home builders fell three points to 32 in September, marking a one-year low and the 17th consecutive month below 40, according to the National Association of Home Builders. Anything below 50 is considered pessimistic. The forward-looking component, six-month sales expectations, slid six points to 37, while buyer traffic was flat, at 23. Price cutting spread to 38% of builders, up from 35%; the typical reduction has held at 6% over the last six months. Two-thirds of builders are now offering incentives, a share not seen since December. Regional three-month averages weakened everywhere but in the West, which remains the weakest of the four regions at 28 despite a one-point gain. The Northeast gave up five points to land at 39. Lot scarcity is a significant headwind, with 42% of builders calling current availability poor.

Mortgage rates have climbed for four straight weeks. The 30-year fixed rate mortgage averaged 6.76% in the week ending September 10, up from 6.71% the prior week and well above the 6.35% of a year ago. Daily lender quotes have moved above 7%. The 10-year Treasury yield sits above 5%. A bond market sell-off has erased the affordability improvement that looked possible earlier this year. 

The Federal Reserve raised the fed funds rate 25 basis points to a range of 3.75% to 4.00% on Wednesday, the first increase since July 2023, on a unanimous vote. The updated projections put the median funds rate at 4.1% by December, which leaves room for a second increase this year, and policymakers marked up their estimate of the longer-run neutral rate. The committee's own projections do not show inflation back at target for another few years.