Drive an under-development subdivision in your area, and you may see this market before you read a single number about it. Lots staked. Utilities flagged. Not much moving.
Builders are getting homes approved, then waiting to break ground. In the latest read of market data, 279,000 permitted homes had not started; that number is up 10.3% over the year. Let’s take a deeper look at this.
Where the Numbers Stand
Single-family starts fell to an 808,000 annual pace in July, the weakest of this cycle, while permits rose 5.0%. The 30-year fixed rate hit 6.71% on September 3, a new high for this run. Framing lumber went the other way, down to $521.35 per thousand board feet.
One note on the snapshot: Census publishes August starts and permits on September 17, so July is the most current construction read. Builder confidence is from August, though, and mortgage rates are from September 3. Neither the August Zonda update nor September builder confidence had been published at the time of this report.
Permits Up. Shovels Down.
Single-family starts fell to an 808,000 annual pace, down 9.9% for the month and 15.7% over the year. That is the weakest reading of this cycle. However, permits rose 5.0% in the same release.
Both facts hold at once. Together they describe a market pausing, not necessarily retreating. The backlog is where the two numbers meet. 279,000 approved homes had not started as of the end of July, up 10.3% over the year, with 149,000 of those single-family. For anyone planning inventory, that stack is the closest thing this market offers to a forward order book. We could read this soft starts headline as “deferred work” rather than absent demand.
Builder Confidence Moves
The NAHB/Wells Fargo Housing Market Index rose to 35 in August from 34. Above 50 means more builders call conditions good than poor. The index has not cleared 50 in over two years.
The headline moved, but nothing really improved where it counts. Buyer foot traffic held at 23. Six-month expectations held at 43.
One real change: fewer builders cut prices, down to 35% from 37%. Read that against falling lumber costs, and it looks like builders are repairing margin rather than demand firming up. Traffic did not move. Incentive use held at 63%, a seventeenth straight month at or above 60%. We’ve said it before, but here it is again: incentives are no longer a promotion but the cost of transacting.
NAHB Chief Economist Robert Dietz added a distinction worth noting. Custom builders report better conditions than builders putting up homes on speculation, and smaller builders in smaller markets are outperforming larger ones. The strength is real, but it sits outside the large production building that moves the most volume.
The Softest Sentiment Sits in the South and the West
The national picture matters, but the local one shows what matters most. On a three-month moving average, builder confidence in the South fell two points to 31, its largest single-month drop this year, and now sits close to the West at 27. The Midwest holds at 45, and the Northeast eased a point to 44. That is a 14-point spread between the strongest region and the weakest.
Southern single-family starts fell 16.2% over the year to a 503,000 pace. Western starts fell 20.7% to 149,000, the steepest regional decline in the release. Year to date, the gap is wider: the South is down 4.6%, and the West is down 10.9%.
The one forward-looking high note sits on the approval side. Southern permits rose 6.6% for the month, the strongest permit month in the country.
Contracts Hold. Closings Don’t.
We flagged this gap in the July bulletin, and then it widened. Zonda counts contracts signed and had new home sales down 1.4% for the month. Census counts closings and had them down 10.5%.
That spread reflects deals falling apart between signing and closing, usually over financing. Buyers are not walking away. Demand is getting written. It just isn’t all funding.
Two figures make the inventory position concrete. New home supply rose to 9.6 months against a normal four to six. And 117,000 finished homes are standing unsold. Builders sell what is already framed before they frame anything new, which is the mechanism holding that permit backlog in place.
Pricing shows where the pressure lands. The median new home sold for $393,800 in July, the lowest since July 2021. Entry-level averaged $317,715, down 2.4% over the year. High-end averaged $945,470, up 2.6%. The tier that generates the most units is the tier still losing pricing power.
Builders are answering with smaller floor plans and lower specification levels to hold monthly payments down. So, each start draws less material than a start did two years ago. Forecast on unit counts alone, and it could be easy to overstate board-foot demand.
Wolf points to rate volatility, the coming midterm elections, and uncertainty about what artificial intelligence does to the job market. She expects the market to tread water until affordability improves or confidence returns.
Rates Went Up. Lumber Came Down.
Rates eased through mid-August, then reversed. The 30-year fixed hit 6.71% on September 3, a new high for this run and 21 basis points above a year ago. NAHB forecasts 6.6% for the third and fourth quarters, so the market is running about 11 basis points high with one quarter left.
This complicates what we wrote in June, when rates were retreating, and we said relief looked close. NAHB has since raised its 2027 rate forecast from 6.2% to 6.4%. Its quarterly path does not reach 6.3% until the end of that year. The rate environment that converts a permit backlog into starts moved further out, not closer.
Materials moved the other way, and this one is a genuine reversal. The framing lumber composite fell to $521.35 per thousand board feet on August 28, down 6.6% for the month. That is the third straight weekly decline. In July, we reported the composite near $615 and climbing. Futures fell 8.0% for the month, which usually means cash prices have more room to follow.
Two pieces of context keep this honest. First, the duty picture is unresolved. Preliminary Canadian antidumping and countervailing rates came down from a combined 35.2% to 25.9%. But a 10% Section 232 tariff stays for an effective 35.9%, and none of it is final. Second, relief reaches the jobsite slowly on the way down and quickly on the way up. Building material prices rose 5.0% over the past year, the largest annual increase since December 2022, and the composite still sits 9.3% above a year ago.
Treat August as the leading edge of potential relief. Not money already banked.
What We’re Watching Now
Census starts and permits, September 17. Whether single-family starts recover from 808,000 toward NAHB’s 877,000 third-quarter path, or confirm the lower reading.
Freddie Mac PMMS, every Thursday. The forecast calls for 6.6% through year-end. At 6.71%, the market runs about 11 basis points above it.
NAHB builder confidence, mid-September. Whether the South holds at 31 or converges with the West at 27.
NAHB forecast, early October. Whether the fourth-quarter single-family figure of 894,300 holds up against July and August actuals. July came in roughly 69,000 below the third-quarter path.
Commerce Section 232 review, October 1. The review could extend tariff coverage beyond softwood lumber to more wood products. The Canadian duty rates behind the 35.9% effective rate are still preliminary.
Bottom Line
Starts are at a cycle low, sentiment in the South and the West is the softest in the country, and rates moved against forecast. That is the honest read. But 279,000 approved homes are waiting on a reason to start, contracts are still getting written, and lumber gave ground for the first time since spring. This market demands precision over prediction. That means a clear read on which of your markets is which, and a supply chain that adds no second variable to the one you already manage. We are in this data every month so that uncertainty sits with us instead of your inventory plan. Deferred demand still shows up on somebody’s truck, and our job is to have the material on grade and on time when it does.
