A sharp slowdown in multifamily construction hurt U.S. housing starts last month as economic volatility and affordability pressures are keeping renters and buyers at bay.
Seasonally adjusted groundbreakings totaled a 1.275 million annual pace in August, down 2.7% from the revised July figure but 3.5% higher than August 2025, according to a report Thursday from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
Multifamily starts, including apartment buildings and condos with five or more units, declined 22.5% to a 344,000 annual rate, down 15.5% from a year earlier. Single-family starts totaled 918,000, up 7.6% from July and 5.2% year over year.
A general decline in young household formation in recent years, combined with overbuilding in some markets, has led multifamily builders to pull back, said Mark Fleming, chief economist at First American Financial Corp.
"As a homebuilder, what do you do? You don't build more," Fleming told Homes.com News.
Meanwhile, the surprisingly upbeat single-family numbers in August aren't sustainable, according to Nancy Vanden Houten, lead U.S. economist at research firm Oxford Economics.
"Builders of single-family homes — which account for more than two-thirds of starts — will need to work down more of their inventory before they boost construction and that will become more difficult with mortgage rates near 7%," she said in a statement.
The 30-year fixed mortgage rate rose 12 basis points to 6.97% in the week ending Sept. 11, according to Mortgage Bankers Association data released Wednesday. That's the highest level since May 2025.
Housing completions dropped in August from July and a year ago, while building permits, an indicator of future construction, were mixed, according to the government report. Permits fell 2.7% from July but were 3.5% above August 2025.
Year-to-date declines in single-family permits and general economic woes are likely to keep a lid on single-family construction in the coming months, according to Jing Fu, senior director of forecasting and analysis for the National Association of Home Builders. Still, Fu noted that building in the Midwest remains stable, with single-family permits there up 2.9% through August.
On Wednesday, an NAHB monthly survey showed builder confidence dropped to a 2026 low as economic uncertainty and affordability concerns weigh on buyers.
“Single-family starts unexpectedly increased in August, but higher mortgage rates, rising construction financing costs and affordability challenges continue to weigh on the market and limit momentum for new-home construction,” said Bill Owens, NAHB chairman, in a statement.
This story was originally reported by Paul Owers for Homes.com News.