Analysts: August numbers align with larger trend of cooling housing market

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(The Center Square) – New home construction data from the month of August generally continues existing trends in the housing market, according to market analysts.

Construction began on approximately 1.275 million homes and apartments in August, down 2.6% from July and 1.2% from August 2025. Building permits were issued for approximately 1.394 million units, down 2.7% from July but up 3.5% from a year earlier.

Orphe Divounguy, chief economist of Quantitative Research Group and former economist at Zillow, wasn’t surprised by August’s numbers, which he said reflected a broader “controlled slowdown” in homebuilding.

“The report is on trend with the cooling I've been flagging,” Divounguy told The Center Square. “Total starts were essentially flat. So, not a construction cliff — building is normalizing, not cracking.”

An analysis from Joel Berner, a senior economist at Realtor.com, offered a similar picture of the August numbers, suggesting neither a housing boom nor cause for serious concern.

“New residential construction activity showed signs of current trepidation among builders,” he wrote in a statement shared with The Center Square, noting challenges such as rising costs of construction materials and labor, as well as slow sales. But the report also contained some reasons to be optimistic for the future, according to Berner.

While housing starts were “a bit weak,” permitting data suggested construction activity may improve in the coming months.

“Permits had a strong July before giving back a bit of ground in August but remain slightly ahead of last year’s pace,” Berner said. “This muted permitting output is the bright spot of August’s new construction report, hinting at some hope that conditions for builders will improve in the near future.”

Overall, August’s numbers fit into the larger trend of a housing market constrained by affordability pressures.

“It’s all about mortgage rates and a sluggish labor market,” Divounguy said.

Mortgage rates generally fell over the course of 2025 until they bottomed near 6% in February — but then they started climbing again. The average rate on a 30-year fixed mortgage has since risen to 6.95%, according to Freddie Mac, while daily estimates have topped 7.2%.

“Higher mortgage rates worsen affordability and keep potential home buyers on the sidelines,” Divounguy said.

There were also fewer people looking to purchase a home this August than there were a year ago. As demand has weakened and the number of homes for sale has grown, homes are taking longer to sell and builders have increasingly relied on incentives, including mortgage rate buydowns and other concessions, according to Divounguy.

But conditions also vary significantly depending on the type of home and where it is located, accounting for what Divounguy described as a “two-speed” housing market.

“The luxury segment [continues] to outperform while the non-luxury market remains under stress,” Divounguy said.

The housing markets in Cleveland, Hartford, Kansas City, Richmond and San Francisco are tighter than markets in the South. There’s currently more to choose from in Sun Belt cities like Atlanta, Austin, Houston, Miami and Nashville.

For those looking to buy this fall, Berner and Divounguy advise taking advantage of current opportunities while they last.

“Buyers have the opportunity to take advantage of builders cutting prices and offering incentives now, but if the number of new homes coming onto the market slows significantly, they may not have this opportunity for long,” Berner wrote.

For sellers, Divounguy advises pricing homes based on current market conditions and competition rather than last year’s comparable sales, particularly in the Sun Belt.