According to Realtor.com Research, the housing construction market in August revealed a mixed picture of builder sentiment. While new home completions dropped significantly, falling substantially both from the previous month and compared to a year earlier, builders are being squeezed by buyers who simply cannot afford to purchase at current price points given today's high mortgage rates. At the same time, permits for future construction held up reasonably well, suggesting that builders have not completely lost faith in the market ahead despite immediate headwinds from rising material and labor costs forcing them to offer incentives just to move inventory.
The permit data offers the most encouraging sign from the report. While permits did ease back from July's strong performance, they remain ahead of where they were a year ago, and this pattern held true across both single family and multifamily categories. The South, which represents the largest share of new construction activity nationwide, showed particularly stable permitting levels. This modest but positive year over year performance suggests builders are still filing plans to build future homes, even as current sales remain sluggish.
However, the story gets more complicated when looking at housing starts. Multifamily construction took a real hit, with starts falling sharply both month over month and year over year as tariffs on steel and aluminum drive up costs while apartment rents continue to decline, making new multifamily projects financially unattractive. Single family starts actually performed better and even showed growth, particularly in the Western region of the country. The Northeast and Midwest, where housing inventory remains tightest and where new homes are most needed, saw their starts decline substantially.
Perhaps most concerning is the steep decline in completed homes being delivered to the market. The report notes that completions fell nearly across all regions, with the West experiencing the most dramatic pullback. Since housing inventory growth has been slowing overall, the market needs these new home deliveries to meet buyer demand. The report makes clear that builders face a genuine squeeze, with construction costs and labor expenses weighing heavily while weak sales force them to discount just to close deals.
What I am seeing locally here in the Bay Area and across the East Bay is that this national trend is very much playing out in our region. Builders are cautious, buyers remain constrained by affordability, and those looking to purchase today do have some negotiating power with builders offering incentives. But if completions continue to slide and new supply dries up further, that window of opportunity for buyers to negotiate will likely close, and we could face even tighter inventory conditions than we experience now.
