According to Realtor.com Research, new residential construction slipped in July, with groundbreaking activity down significantly both month over month and compared to a year earlier. Single family construction declined in the double digits on a year-over-year basis, while multifamily construction fell even more sharply. However, permits tell a different story, with overall permit activity moving upward for the month, suggesting builders are still getting approval to build even if they're not starting projects right away.
The regional picture shows mixed signals across the country. The Northeast posted gains in monthly permit activity and the West managed to grow permits annually, which is notable since the West is typically strong. However, when it comes to actual construction starts, most regions are struggling, particularly the South, which has been working through excess inventory built up after the pandemic. The Northeast and Midwest are seeing particularly weak multifamily groundbreaking, suggesting builders in those areas are especially cautious about apartment and condo projects.
What's catching everyone's attention is the growing disconnect between permits and starts. The research shows there are now more than a quarter million residential units that have been approved but haven't begun construction yet, the largest backlog in over a year. Meanwhile, the total number of units actively under construction is declining. This tells us builders are holding back, waiting to see whether demand will actually materialize before they commit resources to new projects.
For people looking to buy new homes right now, the near-term advantage remains with consumers. Builders are still offering discounts and incentives to clear finished inventory they've already built, particularly in the South and West. The longer-term reality, though, is tougher. The country has a significant housing shortage that won't get solved if builders keep putting the brakes on new construction. That backlog of permitted but unstarted units suggests builders won't rush into building unless they're confident people will actually buy what they build.
What I am seeing locally in the Bay Area and out toward the East Bay and Fremont is that this national caution from builders is playing out in real time. Our market doesn't have the inventory glut that's bogging down other regions, but we're also not seeing the rush of new construction that would help ease our own affordability challenges. Buyers who can take advantage of builder incentives on new homes should certainly explore that option, but sellers and buyers alike should understand that the fundamental supply shortage that makes our market so tight isn't going to solve itself quickly if builders nationally are hesitant to break ground on new permitted units.
