US residential construction declines unexpectedly in August, hitting lowest pace since pandemic

US housing starts fell to a seasonally adjusted annual rate of 1.275 million units in August, dropping 2.6% from July and landing well below the 1.31 to 1.32 million units economists had penciled in. The reading marks one of the weakest construction paces since the pandemic era, and it arrived on the heels of July’s already brutal 12.4% decline.

The multifamily sector is doing the heavy lifting, downward

Dig into the numbers and a clear story emerges: multifamily construction is in retreat. Starts on buildings with five or more units cratered 22.5% in August, falling to just 344,000 units on an annualized basis. Single-family home starts, by contrast, actually rose 7.6% month-over-month to 918,000 units.

Permits and completions paint a similar picture

Building permits, which serve as a forward-looking indicator of where construction is headed, declined 2.7% to 1.394 million units. Permits were still up 3.5% compared to August 2025. Completions dropped 11.9% to 1.128 million units, representing a 27.1% year-over-year decline.

July’s housing starts had already fallen to 1.239 million units, the lowest reading since 2022. August’s 1.275 million figure is technically higher than July’s trough, but it still missed expectations and continued a pattern that has homebuilders and economists watching closely.

What’s driving the pullback

Elevated financing costs remain a persistent headwind for developers, particularly in the multifamily space where projects require significant upfront capital and longer timelines to reach profitability. Construction materials, labor, and land costs haven’t exactly been cooperating. Homebuilder sentiment has been deteriorating as well, reflecting the industry’s own reading of demand conditions and cost pressures. Mortgage rates, while not at their 2023 peaks, remain elevated enough to price out a significant chunk of potential homebuyers.

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