Kiplinger Housing Outlook: Housing Starts Slide as Mortgage Rates Top 7%
Persistent affordability constraints and elevated prices continue to weigh on housing demand and builder sentiment.
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Home prices rose slightly faster in August, but the rate of gain continues to lag broader inflation. The S&P Cotality Case-Shiller U.S. National Home Price NSA Index posted a 2.1% annual gain in August 2026, up from a 1.9% rise in July. On a month-over-month, seasonally adjusted basis, national home prices rose 0.3%. With August inflation holding at 3.4%, U.S. home values fell in real terms for the 15th consecutive month. Midwestern and Northeastern housing markets continue to outperform, while Western metro areas face price declines. Chicago reported the strongest annual gains for the sixth straight month (+6.7%), followed by New York (+6.2%) and Cleveland (+4.3%). At the other end of the market, Seattle saw the steepest price drop for the third consecutive month (-2.0% year-over-year), followed by Las Vegas (-1.3%) and Denver (-0.8%).
Building conditions deteriorated further in September as construction activity continued to slide. Total housing starts dropped 5.2% in September to an annualized rate of 1.221 million units, coming in below expectations and remaining near recent lows. The decline was broad-based: Single-family starts fell 4.6% to 859,000 units, fully retracing August’s gain, while multifamily starts dropped 6.7%. Forward-looking building permits slipped 0.2% to an annualized rate of 1.400 million units, marking a second straight monthly decline driven by a drop in single-family permits. Regional starts fell in the West (shedding 71,000 units) and Midwest, while starts held flat in the Northeast and rose in the South. Meanwhile, builder sentiment sank to a 14-year low as mortgage rates climbed back above 7%. With higher-for-longer borrowing costs dampening demand, home builders are struggling to sell existing inventory and are heavily relying on price reductions and rate buydowns to move completed units.
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New-home sales slipped modestly in September as rising mortgage rates tested buyers’ spending power. Sales of new single-family homes fell 0.6% in September to 676,000 annualized units, following August's revised pace of 680,000 units. On an annual basis, sales contracted 5.3%. Regional performance was split: Sales surged in the Northeast (+28.0%) and West (+21.4%), but that was more than offset by declines in the Midwest (-7.3%) and South (-6.6%). The supply of unsold new homes edged down slightly to 8.4 months of supply at the current sales pace. The median price of a new home rose 3.9% on a monthly basis, to $400,400, though it remains down 3.9% year-over-year, reflecting a shift in the sales mix toward entry-level units. With 30-year fixed mortgage rates climbing back above 7% in September, high borrowing costs continue to limit purchasing power, despite widespread builder buydowns and discounts.
Existing-home sales ticked up slightly in September, though selling activity remains trapped below prepandemic levels. Sales of previously owned homes rose 1.5% to an annualized rate of 3.99 million units, rebounding from August's downwardly revised 3.93 million pace (but down 2.2% year-over-year). Single-family home sales rose 2.0% to 3.64 million seasonally adjusted annual units, while condo and multifamily sales fell 2.8% to 0.35 million. Regional sales increased in the South (+2.8%) and West (+2.8%), held flat in the Midwest, and fell in the Northeast. Total existing inventory increased 1.9% to 1.60 million units (+4.6% year-over-year), keeping supply constant at 4.8 months at the current sales pace. The median existing-home price dropped 2.4% month-over-month to $417,500 (+1.3% year-over-year). Because September closings captured financing locked in when mortgage rates were roughly 50 basis points lower, the recent spike above 7% is expected to keep existing-home sales below 4 million units into next year.
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