The summer real estate market often brings a mix of activity, and this July and August are no exception. At CMRE, we’re closely monitoring the latest data, which reveals a complex landscape of cautious builders, hesitant buyers, and lingering affordability challenges. While some indicators point to future potential, the immediate picture reflects a market still finding its footing amidst elevated mortgage rates and home prices.
Housing Construction: Caution Today, Potential Tomorrow
Residential construction saw a pullback in July, with housing starts declining significantly. Privately owned housing starts fell 12.4% to a seasonally adjusted annual rate of 1.239 million. Single-family starts bore the brunt, dropping 9.9% to 808k units. This suggests builders are remaining cautious about active construction.
However, there's a silver lining. Building permits, a forward-looking indicator, reversed course. They increased 5.0% from June to an annual rate of 1.443 million, surpassing July 2025 levels by 3.1%. Single-family authorizations also rose by 2.5% to 894k, and multi-family permits saw a healthy increase to 490k. This divergence hints that while actual construction slowed, builders are still greenlighting new projects, suggesting stronger activity could be on the horizon.
Pending Home Sales: Affordability Squeezes Buyers
The story for existing homes in July wasn't as optimistic. Pending home sales, which track signed contracts, slipped again, falling 2.3% from June and 2.2% from a year earlier. This marks the lowest level for pending sales since January 2026. The culprits? Elevated mortgage rates and persistent record-high home prices continue to weigh heavily on buyer demand.
NAR Chief Economist Lawrence Yun noted that the "highest mortgage rates of the year hit right in the middle of summer," directly impacting contract signings. Homes are taking longer to sell, and fewer buyers are bidding above asking prices. Regional declines were widespread, with the West experiencing the largest drop at 4.7% monthly. Despite robust job gains, a significant amount of potential demand remains on the sidelines, with pending contracts currently 30% below their 2019 level.
Builder Confidence: A Modest Nudge Amidst Headwinds
Builder sentiment saw a marginal improvement in August, with the NAHB/Wells Fargo Housing Market Index (HMI) ticking up one point to 35. While any increase is welcome, it’s important to note this marks the 16th consecutive month the index has remained below 40, indicating subdued confidence within the industry.
Builders continue to grapple with high construction costs, weak demand for spec homes, and broader economic uncertainty. Rising gas and diesel prices are also adding to material costs. Current sales conditions improved slightly to 39, and sales expectations held steady at 43. However, the traffic of prospective buyers remained unchanged at 23, underscoring that while sentiment edged up, buyer activity hasn't seen a significant rebound. Custom home builders and those in smaller markets are generally faring better than their larger counterparts.
CMRE's Take: Navigating the Nuances
The latest data paints a picture of a housing market navigating choppy waters. While affordability remains a significant hurdle for many prospective homebuyers, the increase in building permits offers a glimmer of hope for future inventory. Builders, though cautious, are still planning ahead.
For those looking to buy or sell, understanding these nuances is critical. Mortgage rates continue to be a dominant factor, influencing buyer capacity and market velocity. As your trusted experts at CMRE, we're here to help you make informed decisions, whether you're securing a mortgage or navigating the real estate market. We'll continue to watch for stabilization in rates and any shifts that might bring more buyers off the sidelines.