U.S. Single-Family Housing Starts Hit 3.5-Year Low as High Mortgage Rates Weigh on Market

Single-family housing starts declined 9.9% in July from the previous month to a seasonally adjusted annual rate of 808,000 units, according to data from the U.S. Census Bureau and the Department of Housing and Urban Development. The figure represents the lowest level since November 2022. Compared with July 2025, single-family starts were down 15.7%.

Higher Mortgage Rates Continue to Pressure Demand

One of the biggest challenges facing the housing market is the cost of borrowing. The average contract rate for a 30-year fixed-rate mortgage stood at around 6.77% in early August, remaining close to its highest level in more than a year. Elevated financing costs have made monthly mortgage payments more expensive and are keeping some potential buyers on the sidelines.

High borrowing costs are also creating challenges for existing homeowners. Many households that secured mortgages at significantly lower rates have little incentive to sell and take on a new loan at today's higher rates. This so-called "rate lock" effect has contributed to relatively weak housing turnover. The Federal Reserve has noted that the majority of outstanding U.S. mortgages remain below 4%, well below prevailing rates.

Builders Become More Cautious

The slowdown in construction reflects growing caution among homebuilders. Builders are dealing with elevated financing and construction costs while also facing inventories of completed and unsold homes.

Recent builder sentiment data showed a slight improvement in August, with the National Association of Home Builders/Wells Fargo Housing Market Index rising to 35 from 34 in July. Despite the increase, sentiment remained below 40 for the 16th consecutive month, indicating that builders continue to view market conditions as challenging.

Builders are increasingly relying on incentives to attract buyers. Nearly two-thirds of builders were offering some form of sales incentive in August, while around 30% were cutting prices, with the average reduction at approximately 6%.

Overall Housing Construction Also Declines

The weakness was not limited to single-family properties. Total U.S. housing starts, including multifamily developments, dropped 12.4% in July to a seasonally adjusted annual rate of 1.239 million units. The result was considerably below economists' expectations of approximately 1.35 million units.

Multifamily construction also declined during the month, although the single-family sector remains particularly important because it represents the majority of U.S. homebuilding activity.

The decline follows a volatile first half of the year. In June, total housing starts had reached a seasonally adjusted annual rate of 1.427 million units, while single-family starts stood at 895,000.

Building Permits Offer a Small Positive Signal

Despite the decline in actual construction, there was a modest improvement in future single-family building activity. Permits for single-family homes rose 2.5% in July to an annualized rate of 894,000 units. However, the level remained close to a three-year low, suggesting that builders are still reluctant to significantly increase new projects.

The improvement in permits could eventually provide some support for construction if mortgage rates ease and buyer demand strengthens. For now, however, builders remain cautious about adding inventory while sales conditions remain subdued.

Housing Market Faces Continued Affordability Challenges

The latest construction figures underline the broader affordability problems affecting the U.S. property market. High mortgage rates are increasing the cost of purchasing a home, while elevated construction expenses make it more difficult for builders to deliver new properties at prices accessible to a wider pool of buyers.

Contract signings for existing homes also fell 2.3% in July, reaching their lowest level since January. The decline suggests that weak demand is affecting both the new-build and resale segments of the market.

With borrowing costs still elevated and economic uncertainty weighing on consumer confidence, the U.S. housing sector is likely to remain under pressure. Builders may continue limiting new construction, offering incentives and adjusting prices as they attempt to balance inventory with subdued buyer demand.