According to HousingWire's analysis of recent Census data, housing starts in July came in below expectations and continued a pattern we've been seeing for years now. The report shows that privately-owned housing starts dropped compared to the previous month and year-over-year, while building permits did tick up slightly. What's important to understand here is that this isn't necessarily a crisis, it's actually a rational response from builders who are reading the market carefully.
The key insight from this reporting is that we don't actually have a housing shortage driving construction in America right now. New home sales have been stuck in a narrow range for about a decade, aside from that COVID blip, and builders recognize this reality. If there truly were a severe shortage, you'd see builder confidence and construction activity surging, but that's simply not happening. Builders are cautious because demand for new homes isn't strong enough to justify aggressive building plans.
One reason the construction slowdown hasn't been more severe is that builders had built up profit margins over the last few years and have been using some of that cushion to help buyers with rate buydowns. Without that financial flexibility, the construction numbers would look even softer than they are. Additionally, fewer people are moving around these days, which means remodeling and renovation work has stayed relatively steady since homeowners are staying put longer in their existing homes.
The data shows that when completed new home sales historically exceed a certain threshold, builders tend to pump the brakes on production. Right now we're below that threshold but improving modestly. So while permits did rise in July, it's a modest improvement and construction remains constrained. The message from builders is clear through their actions: they don't believe in a housing shortage narrative, and they're behaving accordingly by maintaining steady but limited production.
What I am seeing locally here in the Bay Area mirrors what's happening nationally. Our market has its own dynamics, but when mortgage rates pressure demand across the country and construction capital becomes more expensive, it affects what we do in the East Bay and Fremont too. Buyers should understand that expecting a flood of new inventory to solve affordability issues isn't realistic in this environment. Instead, we're likely to see construction remain relatively flat as builders wait to see if buyer demand strengthens before committing to significant expansion.
