Housing Starts Rebound, But Building Permits Slide

Weekly Economic Review: August 25, 2025

This week’s economic data highlights include: (1) new residential construction for July and 2) existing home sales for July.

Key Summary:
Residential construction rebounded in July, led by strong multifamily starts, while a sharper-than-expected drop in building permits signaled potential weakness in future development.

Residential construction activity showed solid momentum in July, with housing starts rebounding strongly. The increase was driven by a notable surge in multifamily construction, which reached its highest level in over two years. Single-family starts also posted gains, reversing recent declines. Regionally, growth was uneven, with sharp increases in the Midwest and South offset by declines in the Northeast and West.

Building permits, however, painted a more cautious picture of future construction. Permits declined month-over-month, falling short of market expectations and reaching their lowest level in several years. While single-family permits showed a modest recovery, multifamily permits dropped significantly, suggesting potential headwinds for future development in that segment.

On a year-over-year basis, the underlying trends were similar.  Housing starts posted their strongest growth since late 2023, driven by continued strength in multifamily construction. In contrast, building permits extended their annual decline, with single-family permits continuing a long streak of weakness and multifamily permits showing their first annual drop after several months of gains. This divergence highlights a resilient current construction pace but growing uncertainty about future activity.

Existing home sales rose in July as easing mortgage rates and slower price growth improved affordability, but elevated borrowing costs and weak job growth continue to limit buyer activity.

Existing home sales saw a modest increase in July, outperforming market expectations. The uptick was largely driven by easing mortgage rates and slower home price growth, which helped improve affordability. Regionally, most areas experienced gains, though the Midwest saw a slight decline.

Home prices continued their upward trend but at a significantly slower pace, marking the smallest annual increase in over a year. This deceleration suggests that many markets across the country are beginning to see price declines, particularly in the West. Despite ongoing annual gains, the overall momentum in price growth has weakened.

Housing inventory rose to its highest level in several years, indicating a more balanced market. However, elevated mortgage rates and soft labor market conditions have kept buyer activity subdued. While the increased supply has not led to a surge in sales, it has helped stabilize prices in some regions.

Buyer dynamics shifted, with fewer first-time buyers and more investors and all-cash purchases. Homes stayed on the market slightly longer, but distressed sales remained low. Mortgage rates held steady but remain elevated compared to last year, continuing to impact affordability and market behavior.

Let’s take a closer look at this week’s data releases, including new residential construction and existing home sales.

New Residential Construction – July Update: 

Housing Starts:

According to the U.S. Census Bureau and the Department of Housing and Urban Development, new residential construction rose 5.2% month-over-month in July to a seasonally adjusted annual rate of 1.43 million units – up from 1.36 million units in June (revised from a 4.6% to a 5.9% decline). This marks the highest level since February and exceeded market expectations, which had anticipated a 1.8% decline. The increase was primarily driven by the strongest growth in multifamily starts in over two years.

• Single-family starts, which represent the largest share of housing construction, rose 2.8% to an annualized rate of 939K units, rebounding from a 3.8% decline in June (913K units).
• Multifamily starts surged 9.9% to 489K units, following a 33.6% increase in June (445K units). July’s figure is the highest since May 2023 (579K units) and well above the long-term average of 367K units (1959–2024).

Regional Breakdown:

• Northeast: -26.0%
• Midwest: +33.3%
• South: +19.2%
• West: -27.5% to 232K units
  • Single-family:183K units (-6.2%)
  • Multifamily:49K units (-60.8%)

Annual Comparison: Total housing starts rose 12.9% year-over-year in July – the strongest annual gain since December 2023.

• Single-family starts: +7.8% (rebounding from six consecutive annual declines)
• Multifamily starts: +24.1% (fifth consecutive annual increase)

Building Permits:

Building permits, a leading indicator of future construction activity, declined 2.8% month-over-month in July to a seasonally adjusted annual rate of 1.354 million units – down from 1.393 million in June and the lowest level since June 2020. The July figure was worse than market expectations, which had anticipated a smaller 0.5% decline to 1.386 million units.

• Single-family permits rose 0.5% to 870K units, rebounding from four consecutive monthly declines.
• Multifamily permits fell 8.2% to 484K units, the lowest level since February.

Regional Breakdown:

• Northeast: +25.2%
• Midwest: +0.5%
• South: -4.6%
• West: -10.1% to 267K units
  • Single-family:171K units (-0.6%)
  • Multifamily:96K units (-23.2%)

Annual Comparison: Total building permits declined 5.7% year-over-year in July, marking the fourth consecutive annual decrease.

• Single-family permits: -7.9% (fourteenth consecutive annual decline)
• Multifamily permits: -1.4% (first decline following four consecutive annual increases)

Existing Home Sales – July Update: 

According to the National Association of Realtors, existing home sales rose by 2.0% month-over-month in July, reaching a seasonally adjusted annual rate of 4.01 million units, up from 3.93 million units in June. This figure exceeded market expectations of 3.92 million units (-0.3%), with the increase largely attributed to slower home price growth and easing mortgage rates.

Regional Breakdown:

• Northeast: +8.7%
• West: +1.4%
• South: +2.2%
• Midwest: -1.1%

On a year-over-year basis, sales rose 0.8% in July, following no change in June. Regionally:

• Northeast: +2.0%
• Midwest: +1.1%
• South: +2.2%
• West: -4.0%

The median existing home price across all housing types and regions increased 0.2% year-over-year to $422,400, up from $421,400. While this marks the smallest annual gain since June 2023, it was the 25th consecutive month of price increases. However, the near-flat growth suggests that roughly half the country is experiencing price declines. Notably, the West saw a 1.4% decrease in median price to $620,700.

Inventory Trends: The inventory of unsold existing homes edged up 0.6% month-over-month to 1.55 million units, the highest level since May 2020. While still below the pre-pandemic level of 1.9 million units, this represents a 15.7% increase year-over-year. The Months’ Supply of Inventory (MSI) stood at 4.6 months, down from 4.7 months in June but up from 4.0 months in July 2024. A supply range of 4 to 7 months typically indicates a balanced market.

Despite higher inventory and elevated mortgage rates, home price growth remains subdued. While the increased selection has not significantly boosted sales, it has helped moderate prices in parts of the South and West. Additionally, sluggish job creation, as reflected in the recent employment report, has contributed to low buying and selling activity.

Buyer Composition:

• First-time buyers: 28% of transactions (down from 30% in June and 29% a year ago)
• All-cash sales: 31% (up from 29% in June and 27% in July 2024)
• Investor purchases: 20% (up from 14% in June and 13% a year ago)
• Distressed sales (foreclosures/short sales): 2% (down from 3% in June, up from 1% in July 2024)

Homes typically remained on the market for 28 days, compared to 27 days in June and 24 days a year ago.

Mortgage Rates: As of August 21, Freddie Mac reported the average 30-year fixed-rate mortgage at 6.58%, unchanged from the previous week and up from 6.46% a year earlier.

Market Analysis:

Equity markets experienced early-week losses driven by inflation concerns and weakness in the technology sector, but rebounded sharply on Friday following Fed Chair Powell’s dovish remarks at Jackson Hole, which heightened expectations for a rate cut in September. A notable sector rotation occurred, with investors shifting from growth to value stocks. Energy, real estate, and financials led the gains, while technology continued to lag. The S&P 500 rose 0.27% to close at 6,467, recovering earlier losses with a strong Friday rally. The Dow Jones Industrial Average climbed 1.5% to a record high of 45,632, while the Nasdaq fell 0.58% to 21,497, weighed down by tech sector weakness.

Treasury yields edged lower over the week, with the 2-year, 5-year, and 10-year notes declining to 3.68%, 3.76%, and 4.26%, respectively—down 7, 9, and 7 basis points from the prior week. The decline was largely driven by Fed Chair Powell’s remarks at the U.S. central bank’s annual conference in Jackson Hole, Wyoming. He noted that risks to the labor market are increasing and suggested that the evolving balance of risks may warrant a shift in monetary policy. However, Powell also cautioned that price increases stemming from tariffs could take time to filter through supply chains and distribution networks, implying that tariff-induced inflation may be more prolonged rather than a one-time adjustment.

Markets are currently pricing in two quarter-point rate cuts in 2025, totaling a 0.50% reduction. The first cut is expected either at the September FOMC meeting (81% probability) or the October meeting (100% probability), followed by a second cut in December, which also carries a 100% probability. Looking ahead to 2026, three additional cuts are anticipated—one each at the March, June, and December FOMC meetings.

Next Week’s Economic Calendar:

Markets will be closely watching several key economic indicators in the coming week for signals on the direction of the U.S. economy. The calendar kicks off with July new home sales and final building permits data. On Tuesday, the July durable goods and capital goods orders report will be released, along with the S&P Case-Shiller 20-city and national home price indices and the Conference Board Consumer Confidence Index. Wednesday will feature weekly mortgage application data.

On Thursday, markets will digest weekly jobless claims, the second estimate of Q2 GDP, and July pending home sales, offering further insight into labor market conditions, economic growth, and housing activity. On Friday, attention will turn to the Personal Consumption Expenditures (PCE) Price Index, along with personal income and spending figures. The PCE – considered the Fed’s preferred inflation gauge – is expected to rise 0.2% in July, maintaining a 2.6% annual increase for the second consecutive month. Excluding food and energy, core PCE is projected to increase 0.3% month-over-month and 2.9% year-over-year, potentially marking a five-month high.

Mark Yoon, CFA CPA

EVP & CFO of Commercial Bank of California

Thomas McCullough
EVP of Commercial Bank of California

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