In September, American homebuilders initiated fewer housing projects, facing challenges from rising mortgage rates and construction costs that continue to pressure the already vulnerable housing market.
Recent data from the Census Bureau indicates that single-family housing starts declined by 4.6%, with permits for upcoming construction dropping by 4.0%. This slowdown occurred as the average 30-year mortgage rate climbed to 7.40%, coinciding with a dip in builder confidence to its lowest point in 14 years. This situation is particularly tough for first-time homebuyers, with the average age of buyers climbing to a record high of 40.
The Census report revealed that single-family housing starts fell to a seasonally adjusted annual rate of 859,000 in September, down from a revised 900,000 in August. Similarly, single-family building permits — an indicator of future activity — decreased to an annual rate of 845,000 from 880,000.
When you consider both single-family and multifamily projects, housing starts overall dropped by 5.2% to an annual rate of 1.221 million, marking a 7.4% decline compared to the previous year. Total building permits saw a slight decrease of 0.2%, totaling 1.4 million, suggesting the pullback isn’t as severe outside of the single-family segment.
This construction slowdown aligns with a sharp rise in home financing costs. Freddie Mac reported that the average 30-year fixed mortgage rate hit 7.40%, a jump from 6.27% a year prior, and nearing its highest levels in three years.
With a median existing-home price of $417,500 reported in September by the National Association of Realtors, a buyer putting down 20% would face a monthly principal and interest payment of about $2,313 at the 7.40% rate. In contrast, at last year’s 6.27% rate, the same purchase would have cost roughly $2,061 monthly, which is about $252 less — a significant difference, translating to over $3,000 a year, not counting property taxes and insurance.
Builders are feeling the pressure from multiple sides. The National Association of Home Builders indicated that its housing market confidence index dipped to 29 in October from 32 in September, marking the lowest level since June 2012. Also, the index reflecting potential buyer traffic decreased to 18.
To entice buyers, 43% of builders admitted to lowering prices in October, the highest percentage since 2020, with an average price drop of 6%. Additionally, about 65% reported offering sales incentives, like mortgage-rate buydowns.
“The housing market is facing significant supply-side constraints along with affordability challenges,” said Robert Dietz, chief economist at NAHB.
Builders have also noted rising costs for construction materials and diesel, along with labor shortages and increasing financing expenses. These issues complicate the justification for new projects as buyer demand continues to fade.
Despite the challenges, some buying activity remains. Existing-home sales edged up by 1.5% in September compared to August, reaching an annual rate of 3.99 million, although this is still lower than figures from a year ago.
Furthermore, around 483,000 newly constructed homes were on the market in August, which represents 8.5 months of supply at the current sales rate, according to separate Census Bureau data.
The latest construction report also highlighted a 14% drop in housing completions compared to September 2025, underscoring the difficulties the industry faces in ensuring an adequate housing supply.
