Builders proceed cautiously with single-family home construction
Elevated material costs, high energy prices and labor shortages are continuing to pressure the construction market, with builder confidence now at a 2026 low.
Builders appear to be proceeding with caution as they gauge demand for new homes — but if the residential construction industry is going to see momentum anytime soon, it will need to catch a break on the current cost environment that is pressuring builders and consumers alike.
Single-family housing starts rise: Overall housing starts in August fell 2.6% compared to July, according to the U.S. Census Bureau. However, single-family home starts were up 7.6% month-over-month and up 5.2% compared to a year ago, with the seasonally adjusted annualized rate coming in at 918,000.
The past six months of data suggest that housing starts have stabilized, though new home construction permits and completions continue to trend lower, according to Mark Fleming, chief economist at First American.
"Permits lead actual construction, so the August data suggests builders are modestly tightening the construction pipeline while cautiously starting to build already permitted projects," Fleming said.
As is the case with the existing home market, elevated mortgage rates and high home prices are creating headwinds for consumer demand. "For homebuilding to regain momentum, builders need some improvement in affordability and relief from the costs that continue to squeeze new construction," Fleming said.
Builders remain pessimistic: Builder confidence in September fell three points to 32 — the lowest level since this time last year, according to the National Association of Home Builders' (NAHB) latest Housing Market Index. The monthly gauge has stayed below 50 for over two years.
The NAHB noted that 38% of home builders cut prices this month, a small uptick from 35% in August, though the average price cut held at 6%. Two-thirds of builders also reported that they are offering incentives in an effort to entice buyers.
"Buyer traffic has weakened across much of the country, largely because of rising mortgage rates," NAHB Chief Economist Robert Dietz wrote in a Sept. 16 blog post. "Builders also continue to face higher material costs, rising gas and diesel prices and persistent labor shortages. In some markets, builders report that increased immigration enforcement is discouraging legal workers from reporting to job sites."