Septenber 17, 2025

Housing starts plunged by 8.5% in August to 1,307 thousand after having risen 3.4% in July and 7.8% in June.  While starts have been exceptionally volatile in recent months but  have generally been between 1,300 and 1,400 thousand since January.  Unrtainty regarding tariffs and their  potential impact on the economy as a whole and on inflation is preventing builders from significantly boosting the pace of production.

Homebuilder confidence remains low as builders are worried about the imposition of tariffs, still high mortgage rates, and the cost of materials so their confidence may not return fully until such issues are resolved.  With 32% of appliances and 30% of softwood lumber coming from international trade, uncertainty over the scale and scope of tariffs has builders concerned about costs.

What seems to be happening now is that builders are still taking out permits to build a new  home when they feel ready.  But at the moment they are completing houses already under construction so they will not be caught with unsold inventory if the economy softens in the months ahead.

Housing affordability depends on three factors — mortgage rates, home prices, and consumer income.  Mortgage rates should edge lower to 6.25% by the end of the year.  Home prices should decline slowly in the months ahead as the shortage of homes available for sale pushes prices upwards but weak demand pushes them in the opposite direction.  Consumer income will continue to climb as jobs are created and hourly earnings steadily climb.  As a result, housing affordability should increase somewhat as the year progresses.  A median-income family today just enough income that is required to purchase a median-priced home.  We believe that by the end of this year that same median-income earning family will have 10% more income than is required to purchase a median-priced home.  That should help.

Potential home buyers today cannot find an adequate supply of existing homes to purchase.  The supply of existing homes on the market has risen in recent months but it still remains low.  The problem is that current owners have been unwilling to trade a 3.0-3.5% mortgage rate for a 6.5% one.  But recent data suggest that they now feel they have waited long enough and are willing to pull the trigger and sell.

Building permits — which are less volatile than starts — fell 3.7% in August to 1,312 thousand after h aving declined 2.2% in July to 1,362 thousand.   We expect permits to turn upwards slightly between now and yearend.

Our best guess is that starts are 1,350-1,400 thousand at the end of this year.

Following a 0.5% decline in GDP in the first quarter and 3.3% GDP growth in the second quarter,  we expect 2.8% GDP growth in the third quarter and 2.0% growth in 2025..

Stephen Slifer

NumberNomics

Charleston, S.C.