New residential construction in the United States fell sharply in July, with groundbreaking activity dropping 12.4% from the prior month to a seasonally adjusted annual rate of 1.239 million units, according to a joint report from the Census Bureau and the Department of Housing and Urban Development. That figure represents a 13.5% decline compared to the same period last year and came in well below the consensus forecast of roughly 1.345 million units from Econoday's survey. Single-family starts led the downturn, sliding 9.9% to an annualized pace of 808,000 units, marking the slowest pace since November 2022. Meanwhile, multifamily construction fell approximately 15.6% to 421,000 units. TD Economics noted that this reading stands as the second-lowest since the pandemic, trailing only the May 2026 figure.

In a contrasting move, building permits showed unexpected strength, rising 5.0% month-over-month to an annualized rate of 1.443 million units, exceeding expectations. The widening gap between permits and starts highlights a growing divergence, as developers secure approvals but delay breaking ground amid persistent rate and cost pressures.

Three of Four Regions Post Declines, With the South Carrying the Heaviest Weight

Regional data revealed broad-based weakness, with the Midwest experiencing the steepest contraction at 27.6% to 173,000 units, followed by the West falling 13.8% to 149,000 units, and the South dropping 12.6% to 645,000 units. Only the Northeast bucked the trend, rising 17.1% to 164,000 units for a second consecutive monthly gain. The South continues to dominate new housing activity despite an annual drop of 24.1%, with single-family starts in that region down 16.2% year-over-year. Realtor.com pointed out that the South is still working through the backlog of new-home inventory accumulated during the post-pandemic building boom. The Midwest's decline was particularly pronounced in the multifamily segment.

Completions also weakened during the month, falling 9.1% month-over-month to an annualized 1.212 million units, a 16.8% decline year-over-year. Single-family completions slipped 5.8% to 878,000 units. The permits picture offered a more optimistic structural view, with single-family authorizations rising 2.5% to 894,000 units and permits for buildings with five or more units reaching 490,000. Multifamily permits climbed roughly 9%, while Midwest permits surged 12.3% month-over-month. The distinction is crucial: permits represent intentions to build, whereas starts reflect actual groundbreakings. The divergence between the two suggests builders are securing approvals but postponing construction as they weigh elevated borrowing costs against project viability.

June's multifamily starts had been artificially inflated by a base-effect spike, with figures revised upward to 499,000 units. July's pullback to 421,000 units brings activity closer to its underlying trend. Single-family construction remains the primary concern, having declined in three of the past four months and now sitting at the lower boundary of its post-pandemic range.

Mortgage Rates Near 6.7% With Inventory Exceeding Nine Months of Supply

TD Economics delivered a blunt assessment: mortgage rates are again approaching 6.7%, and at the current sales pace, new-home supply remains above nine months. While new-home sales have shown greater resilience compared to existing homes, builders continue to rely on price reductions, subsidies, and incentives to clear inventory. Adding to the strain, costs for building materials, gasoline, and diesel have ticked higher once again. Bill Owens, chairman of the National Association of Home Builders, stated that high interest rates are keeping buyers on the sidelines while material and fuel costs push construction expenses up, making it increasingly difficult to sell homes at prices buyers can afford. The association's forecasting director emphasized that the decline in starts reflects broader economic weakness, with the single-family slowdown particularly alarming given that many markets still face housing shortages.

Pending home sales data from the National Association of Realtors painted a similarly subdued picture, with July pending sales falling 2.3% from June and down 2.2% year-over-year. All four regions registered declines, with the West dropping 7.1% annually. Pending sales now sit roughly at the level typical of a sluggish January. Adding further context, Home Depot characterized the current environment as a "frozen housing market," noting that same-store sales are being driven by minor repairs and higher transaction values rather than major renovation projects.