New residential construction cooled in October as a U.S. government shutdown took hold of Washington, D.C., shuttering most federal offices for the next 43 days.
New government data released by the U.S. Census Bureau and Department of Housing and Urban Development on Friday now shows housing starts fell by 4.6% from September to October, putting them at a seasonally adjusted annual rate of 1.25 million, 7.8% below the pace of housing starts in October 2024.
The pace of permitting slowed more gradually in October, dropping 0.2% from September and 1.1% over the previous 12 months. The pace of new-home completions was 1.1% higher than September but 15.3% lower than a year ago in October.
Speaker of the House Mike Johnson, R-La., had held the lower chamber of Congress indefinitely recessed until the government shutdown ended on Nov. 12, when Democratic lawmakers split from their party to pass a clean stopgap funding bill with Republicans.
The Democrats were holding out for an extension to health care tax credit subsidies set to expire at the end of 2025. With a second stopgap or completed funding bill needing to be passed by the end of January, delegations in Washington are actively settling which policies are must-win and which are negotiable.
Until Friday, the Census Bureau had not released monthly updates on the new-home construction market since September, which surveyed conditions in August. Government data collection and reporting facilities ceased operations due to the shutdown.
For a housing industry and federal government that have stated shared interests in stimulating home building to alleviate a 4-million-unit national housing shortfall, the more than three-month reporting lag undermines visibility into their progress toward those goals.
“The undersupply of houses is well known and driven by local zoning and local governmental add-ons that drive up the cost of production,” the former chief economist of Fannie Mae, Doug Duncan, tells Scotsman Guide. “It’s the most important aspect of the affordability problem.”
Builders’ second-half slump
Nearly a year into the second Trump administration, the new-construction market has slowed notably from 2024 levels. Home builders have pulled back on their pace of starts as sales of standing inventory slow amid a post-pandemic home-price recalibration.
Sources within the new-home lending industry have told Scotsman Guide the same. In a market commentary published Friday, capital markets advisory firm Mortgage Capital Trading (MCT) observed mixed signals in the Census Bureau’s delayed release of new-home market conditions in October.
“Housing starts came in lighter than anticipated with 1.25 million units against 1.33 million units forecasted, but building permits increased above forecast with 1.41 million units vs. 1.34 million units, respectively,” MCT’s commentary noted.
With the Census Bureau not scheduled to release delayed new-home sales figures for October until Jan. 13, fourth-quarter earnings reports from publicly traded Lennar Corp. and D.R. Horton, whose fiscal years ended on Nov. 30 and Sept. 30, respectively, revealed that the sell-side market in 2025 for newly constructed homes slowed, not accelerated, hampering the commencement of new projects that add supply.
Lennar said it lowered its pace of new-home starts to an average of 3.7 per community in the fourth quarter, a decline of 19.5% from the 4.6 pace of starts per community a year ago. In doing so, the company is able to offer an average of 14% off sales prices in incentives.
Even with continued ample use of sales incentives in the fourth quarter, Lennar’s backlog of unsold homes expanded nearly 20% over the year while the dollar value of that unsold stock declined from $5.4 billion to $5.2 billion, a drop of 3.7%.
Meanwhile, Lennar’s operating earnings declined by 47% in the fourth quarter, while its share of home building debt to total capital roughly doubled, from 7.5% to 15.7%. Not only has Lennar’s debt risen and revenue fallen, but the company’s net margin on home sales shrank to 9% from nearly 15% in the fourth quarter of last year.
D.R. Horton reported revenues for the three-month period ending Sept. 30 that were down 4% over the quarter and down 7% over the year. The company’s pretax income fell 24% over the previous year, while its pretax profit margin shrank to about 13% and new sales orders fell by 4% in volume and 6% by value.
D.R. Horton reported that its overall return on inventory, calculated as pretax income divided by average inventory, contracted from 27.8% in fiscal year 2024 to 20.1% over the 12 months ending Sept. 30, 2025. At the same time, the company said on its earnings call that elevated use of incentives will continue in 2026.
Policy options piling up
Concerningly for the housing supply advocates, market developments in 2025, largely driven by persistent affordability pressures, have home builders reporting mostly gloomy outlooks for new-home construction market conditions in 2026.
Duplicative pieces of housing legislation now wind through Congress, promising to help address some of those difficult market conditions.
The Senate’s signature bipartisan ROAD to Housing Act was recently dropped from the omnibus defense spending bill. However, the House’s newly unveiled Housing for the 21st Century Act, which recently passed through the House Financial Services Committee with strong bipartisan support, now awaits a floor vote.
Many smaller bills within the two pieces of housing legislation outline bipartisan and business-friendly solutions for expanding financing opportunities for new construction and reducing the regulatory burden raising builders’ costs and delaying their timelines.
In a bid to help increase supply and restore affordability, President Donald Trump on Wednesday floated banning sales of single-family homes to large-portfolio or “mega” rental investors.
Experts tell Scotsman Guide that a broader restriction on single-family investor purchases, beyond the “mega” cohort, would risk concentrated liquidity and price shocks in select regional housing markets across the U.S., pulling the price floor out of some regional hubs.
In response to Scotsman Guide’s request for a reaction, the Mortgage Bankers Association (MBA) said in a statement that it has shared “targeted recommendations” with the Trump administration on ways to reduce housing costs.
The MBA said these recommendations include:
- Reducing Fannie Mae and Freddie Mac loan-level price adjustments for middle-income buyers and for those seeking rate-and-term refinances
- Ending the tri-merge credit report mandate for lower-risk loans backed by Fannie and Freddie
- Reforming the mortgage loan originator compensation rule
- Improving construction loan options by seeking focused capital gains tax relief on the sale of a principal residence and expanding condominium and multifamily lending through improved policies at Fannie, Freddie and the Federal Housing Administration
