Housing Starts Drop Sharply as High Mortgage Rates Weigh on Home Sales
High mortgage rates, persistent affordability constraints and elevated input costs continue to plague the housing market.
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Home-price gains picked up slightly in June, but the rate of increase remains sluggish relative to broader inflation. The S&P Cotality Case-Shiller U.S. National Home Price NSA Index posted a 1.5% annual gain in June 2026, up from a 1.2% rise in May. On a month-over-month, seasonally adjusted basis, national home prices edged up 0.1%. With June inflation clocking in at 3.5%, U.S. home values fell in real terms for the 13th consecutive month. Northeastern and Midwestern housing markets continue to outperform, while many Western and Sun Belt metro areas face price declines. Chicago reported the strongest annual gains for the fourth straight month (+6.9%), followed by New York (+4.8%) and Cleveland (+4.1%). At the other end of the market, Seattle saw the steepest price drop (-2.0% year-over-year), followed by Las Vegas (-1.9%) and Denver (-1.2%).
Building conditions remain weak following a sharp contraction in July. Total housing starts fell 12.4% in July to an annualized rate of 1.239 million units, reversing June’s revised 19.7% jump. The monthly drop reflected a 15.6% decline in multifamily starts and a 9.9% decrease in single-family starts, to 808,000 units. Conversely, forward-looking building permits rose 5.0% to an annualized rate of 1.443 million units (+3.1% year-over-year), signaling potential builder confidence, despite the current construction pullback. Regionally, July starts increased only in the Northeast (+17.1%), while falling in the Midwest (-27.6%), West (-21.6%) and South (-12.6%). Meanwhile, builder confidence edged up slightly in August, though it remained in negative territory for the 16th consecutive month. To support demand amid high input costs and elevated mortgage rates, 30% of builders reported cutting their home prices.
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New-home sales pulled back significantly in July as elevated financing costs suppressed demand. Sales of new single-family homes dropped 10.5% in July to 607,000 annualized units, following an upwardly revised 7.6% gain in June. On an annual basis, sales fell 6.3%. Regional performance was split: Sales rose in the Northeast (+30.3%) and West (+6.2%), but plummeted in the Midwest (-42.7%) and South (-13.0%). The supply of unsold new homes climbed to 9.6 months. The median price of a new home fell to $393,800 (down 2.3% from June's revised $403,100), reflecting builder discounts and incentives used to bridge the affordability gap. With 30-year fixed mortgage rates averaging 6.54% in July, high borrowing costs continue to keep prospective buyers on the sidelines.
Existing-home sales continued to moderate in July. Sales of previously owned homes fell 1.7% to an annualized rate of 4.06 million units, pulling back from June’s upwardly revised pace of 4.13 million. Single-family sales fell 1.9% to 3.69 million seasonally adjusted annual units, while condo and multifamily sales were flat at 0.37 million. Regionally, sales declined across the Midwest and South, remained flat in the West, and rose in the Northeast. Total existing inventory fell 1.9% month-over-month to 1.54 million units (-0.6% year-over-year), keeping supply constant at 4.6 months at the current selling pace. The median existing-home price dropped 2.0% month-over-month to $434,100. With elevated mortgage rates and persistent affordability constraints, existing-home sales are expected to stay subdued relative to prepandemic trends.
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