Homebuilder sentiment hits 14-year low as high rates and capital demand squeeze housing

Housing starts and pending sales fall; builders face competition from AI data centres and government borrowing

By LineZotpaper

Published20 October 2026

Updated20 October 2026

Read Time2 min

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Homebuilder sentiment has fallen to its lowest level since 2012, while housing starts dropped 5.2% in September and pending home sales hit their lowest mark since records began in 2001, according to fresh data from the Census Bureau and the National Association of Realtors. The deepening slump reflects a squeeze on both sides of the market: high mortgage rates near 7.4% are locking out buyers, while builders face soaring capital costs and competition for labour and materials from AI data centre construction and government borrowing.

September housing starts fell to a seasonally adjusted annual rate of 1.22 million units, down 7.4% from a year earlier and near post-pandemic lows. Single-family starts dropped 4.6% to their lowest level since March 2023, the Census Bureau reported Tuesday.

Pending home sales slipped 7.3% in September, the National Association of Realtors said, reaching the lowest point in data going back to 2001. The average 30-year fixed-rate mortgage stood at 7.4% earlier this month, according to Freddie Mac’s most recent weekly reading, a level not sustained since late 2000.

The National Association of Home Builders (NAHB) reported Monday that its sentiment gauge fell to its weakest reading since 2012. NAHB chairman Bill Owens, a homebuilder from Ohio, said in the release that “nationwide, more than one-third of builders reported immigration enforcement activity in their market areas during the past month, causing construction delays and discouraging legal workers from reporting to work.”

The housing sector is bearing the brunt of two simultaneous pressures: the Federal Reserve’s interest rate increases to cool inflation, which have raised borrowing costs for developers and buyers alike, and the near-bottomless demand for capital from AI hyperscalers and the U.S. government. Residential investment has subtracted from overall GDP for five of the last six quarters.

Housing developers are competing with data centre builders for labour, copper, concrete and HVAC equipment, according to the NAHB. Restrictionist immigration policy has also crimped the supply of construction workers, compounding the problem.

For all the bipartisan political emphasis on increasing housing supply, including a law passed earlier this year to encourage more building, market conditions are working against a building boom. “Builders can’t afford to build, buyers can’t afford to buy, and even the people sitting pretty with pre-2022 mortgages can’t afford to move,” Axios reported.

How it's landing

Liz Ann Sonders @LizAnnSonders

Schwab chief investment strategist

September housing starts -5.2% m/m vs. +1.9% est. & -5.9% prior (rev down from -2.6%) … building permits -0.2% vs. -1.3% est. & -2.1% prior

20 Oct, 13:18 UTC View on X

Posts on X from people the desk follows. Their words, unedited.

Analysis

Why This Matters

Housing affordability is the central economic grievance for many Americans, and the data suggests conditions are worsening rather than improving.
The housing sector’s weakness drags on broader GDP growth and employment, given its outsized role in the economic cycle.
The squeeze illustrates a structural dilemma: using Fed interest rate policy to cool the economy disproportionately damages housing, even though undersupply is the underlying problem.

Background

For more than two years, the Federal Reserve has raised interest rates to tame inflation, pushing mortgage rates to levels not seen since the early 2000s. At the same time, a boom in artificial intelligence investment has drawn massive capital into data centre construction, competing with homebuilders for labour, materials and financing. The U.S. government’s sustained borrowing has also absorbed capital that might otherwise flow to housing. These forces have created a lose-lose dynamic: builders cannot profitably start new projects, and would-be buyers are priced out by high monthly payments.

Key Perspectives

Homebuilders: Face rising financing costs, shortages of skilled labour (exacerbated by immigration enforcement), and competition with data centres for materials. Their costs are rising faster than they can pass on to buyers. Homebuyers: Confront mortgage rates near 7.4% and limited inventory. Many who bought or refinanced before 2022 are locked into low rates and reluctant to sell, further constraining supply. Economists and policymakers: The housing slump underscores the bluntness of monetary policy as a tool to manage economic overheating. Both parties have called for more housing supply, but current conditions make such expansion extremely difficult.

What to Watch

The Federal Reserve’s next rate decision and any signals about future cuts, which would directly affect mortgage rates.
Monthly housing starts and permits data for signs of a further slowdown or stabilisation.
The trajectory of AI-related capital spending and whether it eases enough to free up resources for housing.

Sources

Homebuilder sentiment is at a 14-year low · Axios
September data shows housing market in a deep freeze · US Top News and Analysis

Checked

11 claims in this story checked against 1 source: 8 supported.

Show each claim

SupportedHomebuilder sentiment is at its lowest level since 2012, a 14-year low.Axios: “Homebuilder sentiment fell this month to its lowest level since 2012, the National Association of Home Builders said Monday.”
Partly supportedBuilders face competition from AI data centres and government borrowing.Axios: “In effect, the bottomless demand for capital from AI hyperscalers and the U.S. government has to squeeze something, and that something has been the housing sector.”
SupportedHousing starts fell 5.2% in September.Axios: “The number of housing units started by builders fell 5.2% last month, the Census Bureau said , to 1.22 million.”
SupportedPending home sales fell 7.3% in September and reached their lowest level in data going back to 2001.Axios: “Pending home sales fell 7.3% last month, the National Association of Realtors said Tuesday morning, to the lowest since the data was tracked going back to 2001.”
SupportedHigh mortgage rates near 7.4% are keeping buyers out of the market.Axios: “The average 30-year fixed-rate mortgage rate was 7.4% earlier this month, Freddie Mac said in its most recent weekly reading. [...] That has kept homebuyers on the sidelines”
Not in the sourcesHousing starts were at a seasonally adjusted annual rate of 1.22 million units.Axios: “The number of housing units started by builders fell 5.2% last month, the Census Bureau said , to 1.22 million.”
SupportedSingle-family starts fell 4.6% to their lowest level since March 2023.Axios: “Starts of single-family homes fell 4.6% to their lowest level since March 2023.”
Partly supportedThe 30-year mortgage rate was 7.4% earlier in the month, a level not sustained since late 2000.Axios: “The rate was briefly higher than that in 2023, but has not been consistently above that level since the fall of 2000.”
SupportedNAHB chairman Bill Owens said more than one-third of builders reported immigration enforcement activity causing delays and discouraging legal workers from reporting to work.Axios: “"Nationwide, more than one-third of builders reported immigration enforcement activity in their market areas during the past month, causing construction delays and discouraging legal workers from reporting to work," said NAHB chairman Bill Owens, an Ohio homebuilder, in the sentiment release .”
SupportedResidential investment has subtracted from overall GDP for five of the last six quarters.Axios: “Residential investment has subtracted from overall GDP for five of the last six quarters.”
SupportedThe closing line, “Builders can’t afford to build, buyers can’t afford to buy, and even the people sitting pretty with pre-2022 mortgages can’t afford to move,” is an Axios quote.Axios: “Builders can't afford to build, buyers can't afford to buy, and even the people sitting pretty with pre-2022 mortgages can't afford to move.”