Housing Starts Fall 5.2% in September as Builders Brace for 2027

A weak month that confirms a weak trend

The September construction numbers mostly confirmed what builders had already been saying. Privately owned housing starts fell 5.2% from August to a seasonally adjusted annual rate of 1,221,000. That was 7.4% below September 2025, and August's figure was revised up only slightly, to 1,288,000.1112 Bloomberg reported that the result was a four-month low and came in below every estimate in its survey of economists.18

The weakness was broad. Single-family starts dropped 4.6% for the month to 859,000, although they were still 2.6% higher than a year earlier. Multifamily starts fell 7.2% for the month and 25.9% from a year ago.11 Single-family starts were at their lowest level in a year, and single-family completions fell to their slowest pace in more than six years.19

The forecast drew as much attention as the data. Danushka Nanayakkara-Skillington, who leads forecasting at the National Association of Home Builders (NAHB), said September fit the group's call for lower production in 2026 and further declines in 2027, as rates stay high and material costs rise.1112 NAHB chief economist Robert Dietz had already put a number on it. He projects single-family production to fall 4% to 5% in 2026, after a 7% drop in 2025, and about 3% more in 2027. That would make three straight years of decline.15

Permits: a signal of hope, or a warning?

The coverage splits most clearly on building permits. RISMedia emphasized that total permits barely moved, down 0.2% to 1,403,000. A rise in multifamily permits did most of the cushioning.11 Realtor.com senior economist Joel Berner called this the "least dramatic pullback." He argued that the relative strength of permits shows builders see current conditions as temporary.11

Other outlets led with the single-family figure instead. Single-family permits fell 4% for the month to an 845,000 pace and were 4.8% lower than a year earlier.12 Bloomberg's coverage said these permits had dropped to their lowest level since early 2023.19 CNBC described the 4% permit drop as far steeper than analysts expected.14

The single-family number deserves more weight. Multifamily permits swing a lot from month to month, and HousingWire's Logan Mohtashami argued that higher financing costs will make apartment projects harder to finance in 2027.20 For-sale homes are the part of the market that matters most to buyers, and that pipeline is shrinking. Berner's optimistic reading depends on rates falling, and most current forecasts don't expect that soon.

The regional picture also differs depending on the outlet. RISMedia and HBSDealer reported that total starts in the South rose 6.1% for the month and 11% from a year earlier.1112 Bloomberg, looking only at single-family homes, found that starts in the South fell to their lowest level since January.18 Both can be true at once: rental construction lifted the region's total while single-family building weakened.

Mortgage rates are driving the slowdown

The main cause is borrowing costs. Freddie Mac's 30-year fixed rate averaged 7.40% in the weeks of October 8 and October 15.57 Rates began 2026 at around 6%.15 By the Mortgage Bankers Association's (MBA) weekly measure, the contract rate reached 7.50% for the week ending October 9. That was the highest since November 2023 and followed eight straight weekly increases.3337

Several outlets trace the rise to the Iran war, which began in late February. Trading Economics counted a cumulative increase of 141 basis points since the strikes began.37 NAHB had forecast in February that starts would grow modestly in 2026 and that rates would fall below 6% in 2027. Then the war pushed up borrowing costs and hurt consumer confidence.13 Dietz added that the conflict has also raised builders' energy and material costs. He listed tariffs and immigration enforcement among the other pressures, the latter because it shrinks the construction workforce.15

Forecasters have raised their outlooks sharply. Fannie Mae's October forecast puts the 30-year rate at 7.4% for the fourth quarter of 2026 and 7.5% for all of 2027, a big increase from its September projections.58 The MBA is only a little more hopeful. It expects 7.3% at the end of this year, easing to 7.1% by late 2027.5 Some consumer-facing rate pages still show end-of-year forecasts near 6.8% to 6.9%, which shows how quickly the consensus has moved.1 There is some short-term relief. Mortgage News Daily noted that a large share of a fairly sharp decline in rates came after October 9.34 One weekly outlook had the 30-year near 7.28% and edging lower, though with low confidence.4 Whatever the path over the next few weeks, the main forecasts agree that rates will stay above 7% into 2027.

Fewer mortgage applications and record-low pending sales

The effect on buyers shows up first in mortgage applications. Total applications fell 4.2% in the week ending October 2 and another 2.7% the following week. The seasonally adjusted purchase index fell 4% in the later week and was 16% below the same week last year.3133 Refinance activity was 56% lower than a year earlier.33 More borrowers are choosing adjustable-rate loans to lower their monthly payments. The ARM share reached 10.5%, the highest since October 2025.35 FHA purchase applications fell the most in early October. That suggests first-time and lower-income buyers are being hit hardest.31

Pending home sales, which count signed contracts, showed the clearest damage. The National Association of Realtors (NAR) said its index fell 7.3% in September and was 11.3% lower than a year earlier.14 The index dropped to 66.0, the lowest since the series began in 2001. Economists had expected a decline of only 0.5%.17 Every region declined, led by the West at 9.2% and the South at 8.2%.16

Closed sales lag contracts, so they looked better for a little longer. Existing-home sales rose 1.5% in September to a 3.99 million annual pace but were still 2.2% lower than a year ago. NAR chief economist Lawrence Yun noted that August and September were the two slowest months of the year.21 Yun also said those closings mostly reflected contracts signed in August, before the sharpest rate increases. He warned that fourth-quarter closings could be "measurably down" if rates stay well above 7%.21 Given the pending-sales collapse, that warning now looks like the most likely outcome.

Home prices are still rising, but the pressure is building

Prices have held up so far. The median existing-home price was $417,500, up 1.3% from a year earlier. That was the 39th straight month of annual gains and the highest September median on record.2123 But the conditions behind those prices are changing. Inventory reached 1.60 million homes, the highest since November 2019, which equals 4.8 months of supply.21 Yun summed it up by saying supply is no longer the problem and demand is what's shrinking.21

Prices already look weak at the edges. The West was the only region where median prices fell, down 0.3% to $613,600.23 The median new-home price has fallen below the median existing-home price as builders lean on rate buydowns and other incentives.28 Dietz called that unusual gap a warning sign and said NAHB expects existing-home prices to fall in most markets over the next year.15 Cotality's Selma Hepp has said that 80% to 90% of new-home sales now require mortgage rate buydowns. She projects starts will fall 2% in 2026 and 4% in 2027.13

Builder confidence and the bigger picture

Builder sentiment is at a multiyear low, though outlets describe it differently. RISMedia and HousingWire placed it at the lowest level since 2012.1120 CNBC and Bloomberg called it a 14-year low.1418 Either way, the details are poor. NAHB's preliminary October reading showed weaker current sales, weaker sales expectations and the lowest buyer-traffic reading on record.17

The weakness reaches beyond housing. Sluggish construction has weighed on economic growth in five of the last six quarters.18 Nationwide's Ben Ayers expects construction to stay "moribund" into 2027, adding a modest drag on growth.17 Mohtashami pointed to one positive: builders have been working down their excess inventory of completed homes. That could let construction pick up quickly once rates fall.20

But a recovery depends on rates falling. With both Fannie Mae and the MBA expecting 30-year rates above 7% through next year, NAHB's call for a third straight year of lower production looks like the most realistic forecast. The country needs more homes, and builders don't expect to start more of them before 2027 is underway.