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How Elevated Mortgage Rates Are Affecting Housing Starts

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New-Construction Projects

How Elevated Mortgage Rates Are Affecting Housing Starts

While home builder confidence fell to a five-month low in September, persistent buyer demand could accelerate new-home construction in the months ahead

September 20, 2023
Newly framed house under construction
Image: diyanadimitrova / stock.adobe.com

New-home construction dropped by 11.3% in August, falling short of expectations as builders shifted their focus from new starts to project completions due to elevated mortgage rates surpassing 7%. The annual pace of housing starts fell to 1.28 million, with single-family home construction posting a 4.3% decline and apartment construction plummeting by 26.3%, according to Realtor.com. 

The West recorded the most substantial decrease of 28.9%, while the South saw an 8.1% rise in single-family home construction. Despite concerns about high rates, builders anticipate steady buyer demand in the months ahead as a worsening housing shortage drives up competition for available homes.

Builder confidence in September fell to the lowest level in five months, according to the NAHB. Home builders are increasingly offering incentives, including cutting prices. The share of builders cutting prices to boost sales rose to the highest level in nine months, the NAHB noted, going up to 32% in September from 25% the previous month.

Nonetheless, given the long-term need for housing and a decade of underbuilding, builders may not see a sustained drop in demand.

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