Rising mortgage rates, elevated home prices and mounting construction costs are weighing on the US housing market, raising concerns about residential investment and affordability.
WASHINGTON, October 20, 2026 — US single-family home construction dropped sharply in September, while permits for future projects fell to their lowest level in three and a half years, signaling renewed weakness in the housing market as higher mortgage rates discouraged buyers.
Data released Tuesday by the US Commerce Department showed that single-family housing starts declined 4.6% to a seasonally adjusted annual rate of 859,000 units, the lowest level since September 2025. Single-family building permits fell 4.0% to 845,000 units, their weakest reading since March 2023.
The figures followed a sharp deterioration in homebuilder confidence. A National Association of Home Builders survey released Monday showed sentiment among single-family builders falling in October to its lowest level since June 2012.
Builders are facing rising material costs, expensive financing, higher diesel prices and worsening labor conditions amid an immigration crackdown. Meanwhile, high home prices continue to put homeownership beyond the reach of many Americans.
Christopher Rupkey, chief economist at FWDBONDS, said housing construction was weakening as affordability challenges made it increasingly difficult for potential buyers to purchase new homes.
Mortgage Rates and Affordability Pressure Demand
Borrowing costs have climbed significantly in recent weeks. The average rate on a 30-year fixed-rate mortgage reached 7.40% last week, its highest level in nearly three years, according to mortgage finance firm Freddie Mac.
Higher mortgage rates, combined with persistently elevated home prices, have intensified the affordability crisis facing prospective buyers. The issue has also become a prominent topic in political messaging ahead of the November 3 midterm elections.
The US housing market is also dealing with an oversupply of newly built homes that remain unsold. Weak sales have reduced developers’ incentives to begin additional projects, even as the country continues to face a broader shortage of housing.
Pending home sales fell to a record low in September, according to a separate report from the National Association of Realtors.
Overall Construction Activity Weakens
The downturn extended beyond single-family homes. Total US housing starts fell 5.2% in September to an annualized rate of 1.221 million units, below economists’ expectations of 1.305 million.
Starts for buildings containing five or more units, a volatile segment of the market, dropped 7.2% to an annualized rate of 349,000. Multifamily housing starts were down 25.9% compared with a year earlier.
Overall building permits slipped 0.2% to an annualized rate of 1.400 million units, broadly in line with economists’ expectations of 1.395 million. Permits for multifamily projects increased 5.9% to 503,000 units, partially offsetting the decline in single-family construction.
The number of approved single-family homes that had yet to begin construction remained unchanged at 151,000, near a four-and-a-half-year high. Meanwhile, single-family completions fell 2.4% to an annualized rate of 840,000, the lowest level since May 2020.
Homes under construction totaled 587,000 units, unchanged from the previous month.
Energy Costs Add to the Economic Uncertainty
The housing slowdown comes as higher energy costs add pressure to the broader economy. The report linked rising mortgage rates to Treasury yields, which have been affected by inflation concerns amid the US-Israeli war with Iran.
Economists also warned that construction labor shortages could be exacerbated by the expansion of data centers supporting artificial intelligence technology.
The weakness in residential construction could weigh on economic growth. Residential investment rebounded in the second quarter, contributing modestly to gross domestic product after five consecutive quarterly declines.
However, Morgan Stanley estimated that residential investment contracted at a 4.0% annualized rate in the third quarter. Overall US economic growth estimates remained above a 3.0% pace, compared with a 2.2% annualized rate in the second quarter.
The government was scheduled to release its advance estimate of third-quarter GDP the following week.
Builders Adjust as Inventory Builds
Some economists argue that the decline in construction starts could help prevent the housing market from becoming further oversupplied. With buyer traffic weakening and unsold inventory accumulating, slowing new construction may help developers bring supply closer to demand.
Stephen Stanley, chief US economist at Santander US Capital Markets, said a slower pace of starts could help keep inventories from rising too far.
Still, the outlook remains uncertain. Carl Weinberg, chief economist at High Frequency Economics, said residential construction could remain weak in the coming months until the effects of the energy shock become clearer.
With mortgage costs elevated, affordability under pressure and builders confronting excess inventory, the September data suggest the US housing market faces continued challenges heading into the final months of 2026.
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