U.S. homebuilding drops 12.4% in July as mortgage rates and costs squeeze builders

Construction on new U.S. homes fell sharply in July, with builders breaking ground at a seasonally adjusted annual rate of 1.24 million units, down 12.4 percent from June and 13.5 percent below the pace a year earlier, according to data jointly released by the Census Bureau and the Department of Housing and Urban Development. The decline was concentrated in single-family construction, the segment most directly tied to the homes most American buyers are searching for, and it came even as builders pulled more permits for future projects.

The report, one of the government's most closely watched monthly gauges of the housing market, lands as mortgage rates remain stuck well above where they sat for most of the past decade and as construction material and labor costs continue climbing. For prospective buyers already contending with elevated home prices, a pullback in new supply threatens to keep the market tight for longer, even in a year when overall home sales have been comparatively steady.

The numbers

Single-family housing starts fell 9.9 percent from June to a seasonally adjusted annual rate of 808,000, and were down 15.7 percent from July 2025, according to figures published by the National Association of Home Builders. Multifamily starts, which include apartment buildings, fell 16.8 percent month over month to a rate of 431,000, an 8.9 percent decline from a year earlier. Housing completions also slid, dropping 9.1 percent from June to a seasonally adjusted annual rate of 1.21 million units, 16.8 percent below July 2025.

Building permits moved in the opposite direction. Total permits issued rose 5.0 percent from June to a seasonally adjusted annual rate of about 1.44 million units, with single-family permits up 2.5 percent to 894,000 and multifamily permits up 9.4 percent to 549,000. Because permits are typically issued before ground is broken, the gap between rising permits and falling starts suggests some builders are securing approvals while waiting for more favorable financing conditions before committing to construction. At the end of July, 579,000 single-family homes and 683,000 multifamily units were still under construction nationwide, according to the Census figures.

Why builders are pulling back

The most immediate constraint remains the cost of borrowing. The average rate on a 30-year fixed-rate mortgage stood at 6.65 percent for the week ending August 20, according to Freddie Mac's Primary Mortgage Market Survey, essentially unchanged from 6.58 percent a year earlier and well above the levels builders and buyers grew accustomed to for much of the 2010s. Elevated rates raise monthly payments for buyers and increase the carrying costs builders pay on land and construction loans before a home is even sold, a combination that has made builders more cautious about starting speculative projects.

Construction costs are adding a separate layer of pressure. Bill Owens, chairman of the National Association of Home Builders and a home builder and remodeler from Worthington, Ohio, said in a statement that "higher mortgage rates are keeping many prospective buyers on the sidelines, while rising material, gas and diesel costs are adding to construction expenses." Fuel costs in particular have climbed alongside the national average gasoline price, which has pushed toward $4.10 a gallon this summer, raising the cost of hauling lumber, concrete and other materials to job sites.

"The drop in single-family construction is especially concerning given the persistent housing shortage in many markets," said Danushka Nanayakkara-Skillington, the association's assistant vice president for forecasting and analysis.

A regional divide

The slowdown has not been felt evenly across the country. Year-to-date figures compiled alongside the July report show a clear regional split, with the Northeast bucking the national trend while other regions pulled back.

• Housing starts, year to date: Northeast up 11.7 percent, Midwest down 4.5 percent, South down 3.0 percent, West down 3.8 percent
• Building permits, year to date: Northeast up 14.3 percent, Midwest up 2.6 percent, South down 4.7 percent, West up 2.1 percent

The South, which accounts for the largest share of new home construction nationally, has been especially sensitive to the pullback given its heavy reliance on single-family building for growing suburban markets around cities such as Dallas, Atlanta and Charlotte.

Who is affected

The slowdown touches multiple groups differently. First-time buyers already priced out by high mortgage rates face an even tighter search as fewer new homes reach the market, particularly in the entry-level price segment that builders have said is hardest to build profitably given current land and labor costs. Renters are less directly exposed to the starts data but stand to feel its effects over the next one to two years if slower multifamily construction eventually tightens apartment supply in fast-growing metro areas. Builders themselves, meanwhile, are managing the tension between land and labor commitments made when rates were lower and a buyer pool that has grown more price-sensitive.

Existing-home sales, which reflect a separate, larger slice of the housing market, have held comparatively steady this year even as new construction has softened, according to figures the National Association of Realtors reported earlier this month, with the median sales price continuing to climb on a year-over-year basis. That divergence — resale activity holding up while new construction retreats — is one reason economists have described the current housing market as unusually lopsided, with affordability constraints weighing more heavily on the pipeline of future supply than on transactions of homes already built.

What happens next

Home builders will be watching mortgage rates closely heading into the fall, a season that typically sees a modest uptick in construction activity as builders try to have inventory ready for the following spring's buying season. Coverage from Real Estate News and Floor Covering News both framed the July figures as evidence that builders are adjusting production plans in near real time as financing costs shift, rather than committing to large speculative pipelines. The Census Bureau's next residential construction report, covering August starts and permits, is scheduled for release in mid-September and will show whether July's decline was a one-month stumble or the start of a longer retreat in new housing supply.