US housing starts slide 12.4% as permits rise, builders stay cautious

US housing starts tumbled 12.4% in July to a seasonally adjusted annual rate of 1.239 million, missing the 1.350 million consensus, while building permits rose 5% to 1.443 million — a divergence pointing to a cooling construction pipeline.

"Builder sentiment remains muted from economic and geopolitical uncertainty, elevated mortgage rates and rising construction costs," said Robert Dietz, chief economist at the National Association of Home Builders.

Single-family starts fell 9.9% from June to 808,000, while starts in buildings with five or more units stood at 421,000. Completions dropped 9.1% to 1.212 million, down 16.8% from a year earlier. Permits for single-family homes rose 2.5% to 894,000, and permits for buildings with five or more units reached 490,000.

The sharp miss adds to evidence of a housing market struggling under elevated mortgage rates and construction costs, with the NAHB/Wells Fargo Housing Market Index at 35 in August — its 16th consecutive month below 40. The data could reinforce expectations for Federal Reserve rate cuts, with implications for homebuilders including D.R. Horton, Lennar and PulteGroup.

Permits Climb 5% as Starts Slide 12.4%

The divergence between permits and starts suggests planned construction remains relatively healthy, but actual building activity weakened during the month. Permits rose 3.1% year over year, while starts fell 13.5% from July 2025 — the widest gap between the two measures in recent months.

The housing market has been under pressure since the Federal Reserve's tightening cycle pushed mortgage rates to multi-year highs. New-home sales were down 5% year to date through June, according to government data, with the Northeast and South each down 5% and the West down more than 10%. The Midwest has been a relative bright spot, up 2.4% year to date.

Builders have pulled back on speculative construction in response to slow buyer demand, relying instead on incentives such as price reductions, mortgage rate buydowns and closing cost assistance to move inventory.

Builder Sentiment Stuck Below 40 for 16 Months

The NAHB/Wells Fargo HMI rose one point to 35 in August, with the current sales conditions component up two points to 39. Indexes tracking six-month sales outlooks and prospective buyer traffic were unchanged at 43 and 23, respectively. The index has not crossed into majority positive territory since April 2024.

Builders remain heavily reliant on incentives, with 63% of survey respondents reporting their use in August, level with July. Slightly fewer builders reported using price cuts specifically — 35% compared with 37% the previous month. Dietz noted that rising gas and diesel prices are pushing up material costs, while spec home building remains weak as many prospective buyers stay on the sidelines.

Custom-home construction firms have proven more resilient this year, serving a higher-end buyer segment that has continued to transact, Dietz said. Smaller, less dense markets are outperforming larger metro areas. The Iran war, now in its sixth month, has added to the uncertainty weighing on builder confidence, according to the NAHB.

The housing data, combined with muted builder sentiment, points to continued softness in residential construction through the third quarter. If the trend persists, it could weigh on GDP growth and strengthen the case for the Federal Reserve to begin cutting rates, with the next policy decision scheduled for September. Treasury yields and homebuilder equities would likely respond to any shift in Fed guidance, while mortgage rates — already elevated — would determine how quickly the sector can recover.

This article is for informational purposes only and does not constitute investment advice.