Housing starts fall to lowest point since 2020, led by a stall in the Sun Belt

Residential construction fell to its lowest point since May 2020, according to an October U.S. Census Bureau report that was delayed by last year’s government shutdown.

Widening air pockets of demand over the past year led to an overbuild of speculative homebuilder inventory in — formerly booming — Sun Belt and Mountain West markets. Builders hit the brakes on new production to reset the supply-and-demand balance. Early indicators suggest that 2026 could be another sluggish year for new home construction, particularly for builders and multifamily developers, who face significant challenges — declines in sales prices and compressed profit margins — as they work through their existing inventory. 

Overall, housing starts declined 4.6% sequentially and 7.8% year-over-year in October. Annually, single-family starts fell 7.8% nationally to 874,000, and starts on units in buildings with five units or more fell by 10.8%. 

Single-family permit authorizations in October totaled 876,000, down 9.4% from the prior year, suggesting that any appreciable spike in housing starts in the months ahead is unlikely. Every region experienced declines in new single-family building permits. But the South (-9.9%) and West (-13.6%) posted the biggest dips, while the Northeast (-4.8%) and Midwest (-2.4%) had more modest drops. 

The Sun Belt — typically the nation’s most active region for new residential construction — is particularly challenging for homebuilders, who ramped up speculative construction too aggressively in the wake of the COVID pandemic. Now, they’re stuck trying to move that existing inventory, which tends to lose value the longer it remains unsold. This oversupply was the primary reason the large metro areas that experienced the largest declines in home prices last year were in the Sun Belt, led by Austin, Tampa, Miami, Orlando, and Dallas. 

The number of single-family homes under construction in October was down 7.0% annually, but the South and West were the most challenged with double-digit drops. The Midwest was the strongest region, with a 2.2% increase. 

Ryan Gilbert, Managing Director at BTIG, tells The Builder’s Daily that it’s unlikely that there will be any significant uptick in new housing starts this year. 

“It wouldn’t surprise me if we saw starts flat to very modestly down in 2026. But against the backdrop of how much margins have come down and incentives have come up, I think housing starts are likely to outperform what you might otherwise expect, given the level of demand deterioration that we’ve seen in 2025,” he said. 

In 2025, the large public homebuilders struggled with shrinking margins, declining sales, higher incentives, tricky input cost trends, and lower revenues. The November BTIG/HomeSphere Homebuilder Survey found that small and mid-sized builders reported similar difficulties, with traffic flat, sales down, and incentives rising. 

These trends hurt homebuilder confidence. In December, the NAHB/Wells Fargo Housing Market Index’s builder confidence gauge was up slightly, but down seven points year-over-year. Following the release of the index, NAHB Chief Economist Robert Dietz forecast a slight increase in new residential construction in 2026.

“We continue to see demand-side weakness as a softening labor market and stretched consumer finances are contributing to a difficult sales environment,” said NAHB Chief Economist Robert Dietz in a provided statement. “After a decline for single-family housing starts in 2025, NAHB is forecasting a slight gain in 2026 as builders continue to report future sales conditions in marginally positive territory.”

BTIG forecasts positive order growth in 2026, but Gilbert calls consumer confidence the “wild card” to watch closely this year. 

Public builders routinely cite weak consumer confidence as a primary constraint on demand, driven in part by a weakening labor market. U.S. Bureau of Labor Statistics data released on Friday found that the U.S. economy added only 50,000 jobs in December and 584,000 jobs in 2025, the slowest year for hiring since 2020. 

“We’ve seen job growth and unemployment move in the wrong direction,” Gilbert said. “And I do think that’s impacted demand over the last over the last few months.”