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Single-family housing starts in the U.S. dropped to their lowest in about two and a half years in August, mainly because of an overhang of unsold homes. The Commerce Department reported declines in both new construction and future building permits, with the South showing the steepest fall. While mortgage rates have eased recently and the Federal Reserve has started cutting interest rates again, economists believe these measures may not be enough as weak job growth and rising unemployment weigh on homebuyer demand. Builders are now focusing on clearing inventory through price cuts and incentives.
Single-family homebuilding in the U.S. slowed noticeably in August, dropping 7.0% to a seasonally adjusted annual rate of 890,000 units. This marks the lowest level since April 2023. Permits for new single-family construction also fell by 2.2% to 856,000 units, the weakest reading since March 2023. Advertisement
The slowdown reflects the burden of unsold new homes, with inventory levels now close to those last seen before the 2008 housing crisis. Economists pointed out that the reduction in starts was needed to bring supply in line with demand. For nearly 18 months, builders have been facing challenges due to excess inventory, and their limited attempts to slow construction have not been effective. Many industry experts stressed that the sector must scale back new starts until the surplus is absorbed.
Regional trends were uneven. The South, which had earlier seen strong construction during a period of rapid job growth, recorded a 17.0% fall in single-family starts as job openings have declined in recent months. In contrast, housing starts increased in the Northeast, Midwest, and West. For multi-family projects, starts dropped 11.0% to 403,000 units, contributing to an overall 8.5% decline in total housing starts, which stood at 1.307 million units.
Forecasts had suggested housing starts would fall to about 1.365 million units, but the actual figures came in weaker. A drop in mortgage rates, driven by expectations of policy easing, had given some hope for recovery. The 30-year fixed mortgage rate slipped to 6.35% recently, an 11-month low, after being above 7.0% earlier this year, according to Freddie Mac data.
The Federal Reserve has resumed its rate-cutting cycle, lowering its benchmark overnight rate by 0.25 percentage points to a range of 4.00%-4.25%. The central bank also projected further cuts through the rest of the year to support the labor market, which has been losing momentum. The Fed had paused earlier this year due to concerns about the inflationary impact of trade tariffs.
Builder sentiment has stayed subdued. A survey by the National Association of Home Builders indicated that while expectations for sales in the coming six months have shown a slight improvement, overall confidence remains weak. Builders are increasingly reducing prices and offering buyer incentives to manage the large backlog of homes.
Other indicators also showed adjustment in the sector. The number of single-family homes approved but not yet started dropped by 1.5% to 133,000 units. Completions rose by 6.7% to 1.090 million units, while the number of single-family homes under construction fell by 2.1% to 611,000 units, the lowest level since early 2021. For multi-family permits, a 6.7% fall pushed approvals down to 403,000 units. Overall permits for residential building dropped by 3.7% to 1.312 million, marking the lowest since May 2020.
Economists believe that residential construction will continue to weigh on GDP growth in the near term. With consumers showing low confidence and increasing concerns about job security, demand for new homes is expected to remain subdued. Analysts expect housing investment to remain a drag on economic growth until at least mid-2026, unless job creation and household income improve.
Source Reuters
5th Jun, 2025
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