Higher mortgage rates are weighing on housing affordability and demand for newly built homes, while construction activity also slowed in July, according to three reports released in August.
The National Association of Home Builders (NAHB) said housing affordability worsened in the second quarter of 2026 as mortgage rates and new-home prices increased. At the same time, the Mortgage Bankers Association (MBA) reported that applications for mortgages to purchase newly built homes fell in July, while Census Bureau data showed a sharp decline in housing starts and completions.
The NAHB’s latest Cost of Housing Index (CHI) found that a family earning the national median income of $106,800 needed to spend 34% of its income on the mortgage payment for a median-priced new home in the second quarter. That was up from 32% in the first quarter. For low-income families earning 50% of the median income, the share rose from 65% to 67%.
The change came as the average 30-year mortgage rate increased from 6.20% in the first quarter to 6.51% in the second. The median price of a new home also increased 2%, from $403,200 to $410,700.
In Illinois, however, housing is more affordable in some parts of the state than in other markets. Decatur was the least cost-burdened market on the CHI, with a typical family spending just 16% of its income on a mortgage for an existing home. Peoria and Springfield also ranked among the least burdened markets, at 18% and 20%, respectively.
“Buyers faced high mortgage rates and economic uncertainty, while builders dealt with rising construction costs, unnecessary regulatory burdens and labor shortages,” said NAHB Chief Economist Robert Dietz. “The recently enacted 21st Century ROAD to Housing Act will help address many of these challenges, but implementation will take time.”
NAHB said affordability weakened for both new and existing homes. For a typical family, the share of income needed for a mortgage on an existing home rose from 32% in the first quarter to 36% in the second quarter.
“A nationwide housing shortage of roughly 1.2 million units continues to strain affordability, and the latest CHI data show that too many households remain cost burdened,” said Dietz. “Policymakers need to remove regulatory barriers, reduce economic uncertainty and support a stronger business climate so builders can produce the homes and apartments the nation urgently needs.”
The Mortgage Bankers Association’s July data showed that demand for new homes was also slowing. Mortgage applications for new-home purchases fell 5.7% from a year earlier and 1% from June.
MBA estimated that new single-family home sales were running at a seasonally adjusted annual rate of 647,000 in July, down 3% from June’s pace of 667,000. The July pace was also below the average annualized sales pace of 664,000 during the first six months of the year.
It was the third decline in the annualized sales pace in four months, according to MBA.
MBA’s vice president and deputy chief economist, Joel Kan, said new-home inventory remained elevated and that weaker demand likely reflected increased sensitivity among buyers to higher mortgage rates.
The average loan size for a new home also declined slightly, from $375,218 in June to $374,438 in July.
The Census Bureau reported that housing starts fell to a seasonally adjusted annual rate of 1.239 million in July, down 12.4% from June and 13.5% from July 2025. Single-family starts fell 9.9% from June to 808,000.
Housing completions also declined. The July rate of 1.212 million was 9.1% below June and 16.8% below July 2025. Single-family completions fell 5.8% from June to 878,000.
Building permits, however, moved in the opposite direction. Privately owned housing units authorized by building permits reached an annual rate of 1.443 million in July, up 5% from June and 3.1% from a year earlier. Single-family authorizations increased 2.5% from June to 894,000.
Overall, the reports show higher mortgage rates taking a larger share of household income while applications for new-home purchases are falling. The census data show that fewer homes were started and completed in July, even as the number of homes receiving permits increased.