Housing starts and permits have been falling for years, but things could be much worse as higher rates have taken a bite out of this sector. This sector hasn’t broken yet, as it has in other economic cycles — mostly because builders have been working with sub-6% rates for the past few years.
This has slowly brought housing construction lower for years and years, instead of crashing as it has in previous cycles. However, as corporate profits fall and rates rise, this game becomes harder and harder for the builders to win. Let’s take a look at where we are in this economic cycle.
Housing starts
From Census: Privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,275,000. This is 2.6 percent (±12.0 percent)* below the revised July estimate of 1,309,000 and is 1.2 percent (±10.8 percent)* below the August 2025 rate of 1,291,000. Single-family housing starts in August were at a rate of 918,000; this is 7.6 percent (±14.0 percent)* above the revised July figure of 853,000. The August rate for units in buildings with five units or more was 344,000.
Housing starts have been slowing and moving lower for years, which is not shocking, as mortgage rates have started to rise and stay elevated versus the previous cycle. For a brief time, single-family starts did okay in 2023 as builders pushed lower rates versus what existing homes could offer, keeping single-family starts elevated, but this will get harder in the future if corporate profits keep moving lower.
At the end of 2024, I wrote this article about how the homebuilders had a supply-and-demand problem, mostly because their completed units exceeded 120,000. Historically, going back decades, builders will pause on construction at that level because they have too much supply and are managing how much they can sell and how much they can build in the future. In the latest new home sales report, we can see they have been making progress bringing down that supply from the cycle peak.
Now, with higher rates and falling profit margins, will this number stop going lower or head even higher again?
Housing permits
Building Permits: Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,394,000. This is 2.7 percent below the revised July rate of 1,433,000, but is 3.5 percent above the August 2025 rate of 1,347,000. Single-family authorizations in August were at a rate of 878,000; this is 1.8 percent below the revised July figure of 894,000. Authorizations of units in buildings with five units or more were at a rate of 467,000 in August. Obviously, it’s no shock that housing permits have also been falling for years. So much for the construction boom people were waiting for! I still stand by the premise of my June 2021 article: that the construction boom would end once rates rise. Don’t put all your eggs on the shortage basket keeping construction going as we have clearly peaked in housing construction this decade unless rates fall.
Of course, as mortgage rates have risen over the last few months, the builders’ confidence data has gotten worse on all metrics. This is not the backdrop for more housing construction, but is it enough to break the cycle?
Is the housing construction cycle breaking?
As bad as the latest data looks, the housing construction cycle, in terms of falling housing starts, permits and remodeling work, hasn’t led to the big layoffs that we are accustomed to from previous cycles. The main reason is that builders have been using their profit margins to offer mortgage rates under 6%. However, the risk of employment getting hit harder over the next 12 months has risen.
Keep an eye on completed units of sale and new home purchase apps; if new home sales break below 2022 lows, that isn’t a good sign and could lead to less construction and employment. Remember, we are building for Skynet (data centers) in this cycle, not for human beings.
For now, we have big cracks, but the ship is still intact in very rough waters.