New-home construction hits a COVID-era low as high prices scare away buyers

• New-home construction starts dropped in July to the lowest level since 2020, new data shows.
• Developers are dialing back as homebuyers stay reluctant due to high prices and mortgage rates.

US construction of new homes dropped to a four-year low last month as would-be homebuyers remain put off by the market's high prices and persistently elevated mortgage rates.

According to Commerce Department data, total housing starts fell 6.8% month-to-month in July, slipping to a 1.23 million annualized rate. That marks the lowest level since April 2020, when pandemic factors pushed the rate down to 938,000.

Although the post-COVID era saw construction momentum surge, high-mortgage-rate pressure and buyer uncertainty have stalled new home projects. Those looking to purchase a property have often found themselves priced out, with low inventory driving prices to unaffordable levels.

In June, home prices hit a fresh all-time high of $442,525, Redfin reported, creating the highest-ever record share of homes valued at over $1 million.

With demand turning lackluster, continued construction has actually boosted supply to its highest level since 2008. The Commerce Department found that completed single-family homes jumped to a three-month high.

But with fewer consumers willing to take up the added inventory, builders seem to be dialing back on new construction.

Faced with this, builder confidence in the new-home market fell for the fourth consecutive month, according to an index tracked by the National Association of Home Builders and Wells Fargo. Confidence is at the lowest level since December of last year.

The same index found that 33% of builders cut home prices in August to spur sales, marking the highest share in 2024. The use of price incentives also grew to 64%.

Buyers appear hesitant to enter the market amid current mortgage rate levels, and many are likely holding off until these borrowing costs ease. Last week, the 30-year fixed mortgage rate stood at 6.49%, Freddie Mac data showed.

"With current inflation data pointing to interest rate cuts from the Federal Reserve and mortgage rates down markedly in the second week of August, buyer interest and builder sentiment should improve in the months ahead," NAHB Chief Economist Robert Dietz said in the report.

But recently, "Shark Tank" investor Barbara Corcoran warned against trying to time the market, cautioning that buyers who wait for lower mortgage rates will instead face tremendous competition that will bolster prices beyond what they are now.

In her view, homes could appreciate as much as 10% once mortgage rates hit 6%.