According to HousingWire, builder confidence has dropped to levels we haven't seen since 2012, and the numbers from September tell the story of an industry pumping the brakes. Housing starts came in at just over 1.2 million on a seasonally adjusted annual basis, down from the prior month and below where we were a year ago. Single-family starts took a particular hit. At the same time, building permits held relatively steady but still came in below the prior year's pace. These numbers suggest that as we head into 2027, builders aren't expecting construction to pick up anytime soon.
The culprit behind this slowdown is clear: mortgage rates are hovering right around 7.5 percent, which makes the math tough for everyone involved. Builders have been trying to keep new home sales alive by offering rate buydowns to offset the pain of higher borrowing costs, but when your profit margins are already getting squeezed, there's only so much of that you can do. The challenge is compounded by rising construction costs, particularly for multifamily projects, which makes issuing new permits even less attractive to builders right now.
What's interesting is that builders have actually made progress working down excess inventory over the past couple of years. Historically, when completed units available for sale climb above 120,000, builders pull back hard on construction to avoid flooding the market. That number has been trending lower, which is the good news. But here's the problem: we're at a point where we need more housing permits to be issued, especially as rental vacancy has stabilized. The economics just don't work for builders to move forward aggressively at current rates and costs.
The data shows that new home sales have outperformed existing home sales significantly over the past several years, mostly because builders have been subsidizing lower rates for buyers. However, even with that support, new home sales haven't grown in a decade and remain around 2019 levels. For 2027, the path forward depends on one thing: mortgage rates need to come down. If rates stay near 7.5 percent, builders will likely produce less, which means even tighter housing supply heading into the new year.
What I am seeing locally here in the Bay Area and the East Bay is that this national story hits particularly hard for our market. We already have limited inventory, strong price appreciation, and tight affordability constraints. When builder confidence is this low nationally and construction is being constrained by rates, it means fewer new homes coming to market everywhere, including our region. For buyers, this translates to continued competition and limited options. For sellers, it reinforces that supply-constrained dynamics we've been working with for years now.
