Housing starts missed estimates today, which isn’t shocking, as builder sentiment plunged yesterday, hitting levels last seen in 2012. But as mortgage rates are parking near 7.5 %, housing construction looks challenging going into 2027. I spoke about this topic at HousingWire’s Homebuilder Summit yesterday and on today’s episode of the HousingWire Daily podcas. With rates in the mid 7s, the builders can try their best to keep new home sales from dropping further with rate buydowns, but with profit margins falling, it gets more and more difficult.
From Census: Housing Starts: Privately-owned housing starts in September were at a seasonally adjusted annual rate of 1,221,000. This is 5.2 percent (±11.8 percent)* below the revised August estimate of 1,288,000 and is 7.4 percent (±11.5 percent)* below the September 2025 rate of 1,319,000. Single-family housing starts in September were at a rate of 859,000; this is 4.6 percent (±10.0 percent)* below the revised August figure of 900,000. The September rate for units in buildings with five units or more was 349,000.
As you can see in the chart below, housing starts have been declining for years, which isn’t a surprise, as the builders are managing their construction pipeline during this higher-rate environment. Mortgage rates have risen a lot this year since the start of the conflict, and now, as we enter 2027, the builders don’t have a lot of confidence that housing starts to grow in next year either.
Housing Permits: Privately-owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 1,400,000. This is 0.2 percent below the revised August rate of 1,403,000 and is 3.0 percent below the September 2025 rate of 1,444,000. Single-family authorizations in September were at a rate of 845,000; this is 4.0 percent below the revised August figure of 880,000. Authorizations of units in buildings with five units or more were at a rate of 503,000 in September.
Heading into 2027 now, with elevated rates and costs starting to pick up for some builders, it isn’t the best environment to be issuing more housing permits. With the Fed funds rate also rising, multifamily construction costs will be higher in 2027 as well. Rental vacancy data has stabilized, so this is the time when we need to have housing permits pick up, but the math doesn’t make sense for builders.
Builder confidence very low
As you can imagine, with rates rising since the conflict started and the economic data firming up, the builders’ confidence data and all its subcomponents have gotten worse, and rates are near yearly highs today.
The one positive data point is that the builders are working through some of their excess supply. History has shown us that when completed units of sale exceed 120,000, the builders pull back on construction. As you can see in the chart below, that number has been falling.
If mortgage rates go lower and demand picks up, housing construction can grow again, because that excess supply has been brought down and the builders will feel more comfortable issuing permits.
Conclusion
New home sales have outperformed existing home sales by a lot over the past few years. New home sales are still at 2019 levels, but this is because they have kept demand elevated by paying down for lower mortgage rates. As the chart below shows, sales aren’t crashing, but they haven’t been growing for 10 years now.
For 2027, the key for builders is to continue taking down their excess supply. However, if mortgage rates are still near 7.50%, this means more of a hit to their profit margins and that isn’t a healthy environment for housing construction growth. This, of course, means that mortgage rates need to go lower. If rates don’t go lower, look for less production in 2027.