The latest residential housing numbers have rolled in for August, with the data continuing to paint a weakening housing market across most of America. Total housing starts were down across the board with both multifamily and single-family construction seeing significant drops from July’s numbers.
This only depicts a portion of the situation, however. As has become more and more common, the trends unfolding in the general population aren’t quite the same as to what’s going on in luxury markets where integrators are commonly working. Where the general mass market continues to falter, the luxury market continues to showcase remarkable strength.
However, despite business seemingly picking up, even this market isn’t immune to potential slow-downs.
Housing Starts for August Continue Narrative of Weakness Total New Housing Starts for Residential Construction Down 8.5% from July
According to a report released by U.S. Department of Housing and Urban Development, total housing starts for the month of August clocked in at a seasonally-adjusted, annualized rate of 1.30 million, which is the number of houses that would be built in a 12-month period if August’s pace were maintained.
That puts total housing starts down 8.5% from July and down 6.0% year-over-year (YoY).
Single-Family Housing Starts Down 7.0% from July, but 11.7% YoY
Meanwhile, single-family housing starts clocked in at a rate of 856,000, down 7.0% from July and down 11.7% YoY. Multifamily properties measuring five units or more held a rate of 403,000 for the month, dropping 11.0% from July, but still being up 15.8% YoY.
Meanwhile, Luxury Homebuilding Market Maintains Astounding Resiliency
As noted in a recent State of the Industry Panel at CEDIA Expo, however, the luxury market is currently proving to be surprisingly resilient. While integrators themselves have been rather optimistic about market conditions, with business having grown exceptionally busy, luxury homebuilders have found similar conditions.
Pulling from the list of production builders, Toll Brothers, who specializes more in the types of homes the clientele of integrators might occupy, has seen far more success in its business. With average home cost hovering in the $900,000 range, Toll Brothers in its most recent earnings report declared that home sales revenues were up 6%.
Luxury spending in general has proven to be incredibly resilient in the current market, with higher income households, the likes of which CE Pro readers would service, making up an outsized portion of consumer spending in the current economy.
In fact, recent reports show that while wage growth has slowed in the lower income sections of the population, higher income rage growth has picked up, reversing the post-COVID trend where lower-paid workers saw the most substantial pay increases.
That Resiliency Isn’t Without its Flaws, Though
Don’t let all that good news whip you up into a euphoria, however. While the luxury market has been enjoying some hefty insulation against the woes of the economy so far, there are still elements present that could tip the market into a potential downturn, and what’s going on in the broader housing market could contribute to that.
Higher income earners aren’t immune to inflation, and while no major inflationary impact due to the recent tariffs have been witnessed yet, many economists warn that the economy isn’t completely out of the woods just yet when it comes to potential tariff-related inflation. Two reasons for that.
Number one, it’s likely that many U.S. retailers stocked up on cheaper imports before the worst of the tariffs took hold, with the supplies of pre-tariff goods potentially running out later this year. Number two, plenty of retailers and manufacturers (including some within the CI space), have opted to eat the additional tariff costs, though economists suspect it to be unsustainable in the long term.
Historically, tariffs have also taken roughly a full year after their implementation to manifest fully in consumer prices, so, many are saying it won’t be until 2026 until we get a full understanding of how tariffs are going to impact the economy, and that’s provided the current administration doesn’t add any new tariffs to the mix between now and then.
Any type of correction in the stock market is also likely to cause the luxury market to weaken as, even if it doesn’t result in a full-blown recession, the value of stocks is also heavily tied to the same wealth effect that gets higher income earners to spend more. If the portfolio takes a hit, that might cause a contraction in spending just as well.
Lastly, when homes drop in value the wealth effect for some homeowners (that being the sensation of wealth that contributes to higher income spending) might actually begin to shrink, as those who might borrow against their home equity to pay for home improvements might be less inclined to do so.
And We’re Already Seeing Some Loss Home Value in the Sun Belt
Looking at regional data for new single-family housing starts, the South represented the worst performing market for the month, with the Sunbelt showing signs of sustained weakness moving on into September.
Southern single-family housing starts were down 17% from the month prior while all other markets posted gains of 1.6%, 8.2% and 42.3% in the West, Midwest and Northeast, respectively.
Housing Starts May Continue to Slow as Homebuilders Signal Pullback
Coinciding with the recent construction data, multiple production homebuilders posted quarterly performance reports, and while only a minority of integrators dabble in production homebuilding, the performance of these larger companies can, in some cases, act as the canary in the coal mine.
Lennar, in particular—a production homebuilder more geared towards the mass market—has been struggling its past few earnings, with the most recent missing analyst estimates and dropping 6% compared to last year.
D.R. Horton, who targets a similar market had selling prices slightly below Lennar with a similar drop in revenue in its recent earnings call.
Part of the reason is that the average sales price on the homes Lennar is selling have declined 8.7% from last year (down 22% from Lennar’s peak during the 2022 housing market frenzy).
Much of this has to do with the weakening of the Sunbelt market, Lennar’s primary focus, however, Lennar’s earnings woes also stem from the builder’s heavy use of incentives. According to reports, Lennar spent an average 14.3% of its final sales price on incentives in Q3 2025, which is the company’s highest rate since 2009.
Many in the Industry Continue to Pin Hopes on Lowering Rates
In a call with investors, Lennar CEO Stuart Miller said that the builder would be dialing it back on production to “allow the market to catch up” with regards to the recent rate cuts made by the federal reserve, noting that its current approach towards housing sales is unsustainable with the sales climate.
In that same call, Miller stated that a mortgage rate either approaching or dipping below 6% would be the key to a market turnaround.
Upon expectations of rate cuts, mortgage rates have begun to sink lower, however, for many homeowners and prospective buyers, they remain high enough to disincentivize action in the market.
The recent drop in rates did trigger a surge in mortgage applications, however, not enough to drag the market out of its doldrums just yet.
But the Fed is Painting a Different Picture with Regards to Rate Cuts
Despite the Fed mentioning it’s open to more rate cuts in the future, it remains incredibly cautious, with the most recent cut being more in response to a potentially weakening job market than any larger motive. Fed Chair Jerome Powell even referred to the most recent cut as “risk-management,” citing risks to the labor market as being the core reason.
Outside of that, inflation remains a key concern for many on the Fed, and with only a singular dissenting opinion for more immediate rate cuts, it seems as though the fed still intends to maintain its “wait-and-see” approach for future reductions. Additionally, economists and lenders are lopsided on how effective a drop in mortgage rates might be for stimulating the housing market.
There’s no denying that a drop in borrowing costs will greatly free up multiple aspects of the market, however Jeffery Ruben, President of Home Lending over at WSFS, cites that borrowers need to be less concerned about rates and more about the price of the house themselves.
While lower mortgage rates may make housing more affordable for some, the broader issue at hand remains the raw cost of buying a home, which, unless those prices start dipping down (which will in turn eat into homeowner equity). In fact, if lower mortgage rates do trigger a meaningful surge in purchases, it’s likely home prices will continue to rise, further pricing out buyers and potentially pushing the market towards even more unsteady ground in the future.
For Everyone Outside the Luxury Market, Outlook Remains Frosty
In its National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), NAHB noted that the most recent rate cuts boosted builder sentiment lightly, though overall sentiment in the current market remains dour.
Overall sentiment for the single-family homebuilding market sat at 32, unchanged from August.
For reference, the HMI, which sits on a scale of 1 – 100, measures the overall sentiment of homebuilders in the survey. A score above 50 indicates builder sentiment leaning more positively, while a score below 50 indicates builder sentiment leaning more negatively.
Current sales expectations also maintained a frosty 34, with expectations for the traffic of prospective buyers dropping a single point to 21.
Future sales expectations, meanwhile, rose two points on the rate cut news, rising up to 45, the highest reading for the category since March.
Housing Permits May Hint at Continued Reduction in Starts
Looking at the number of housing permits being taken out, August also saw a drop of 3.7% from July, down to a seasonally adjusted annual rate of 1.31 million. That number is down 11.1% YoY.
Single-family permits clocked in at a rate of 856,000, down 2.2% from July and down 11.5% YoY. Multifamily came in at 403,000, setting it 6.7% below July’s numbers, and 10.8% below August of last year.
Every single regional market was down on single-family permits with the exception of the Midwest—up 1.6% from the month prior. Permits were down 1.5%, 1.8% and 6.9% in the South, Northeast and West, respectively.