On Aug. 18 the Commerce Department’s Census Bureau reported a marked slowdown in U.S. single-family home construction in July, attributing the weakness to higher mortgage rates and an inventory of unsold new houses on the market.
Single-family housing starts, which represent the majority of residential building activity, dropped 9.9% in July to a seasonally adjusted annual rate of 808,000 units. That segment of construction was also down 15.7% compared with July of last year.
Permits for future single-family construction rose modestly, up 2.5% in July to an annualized pace of 894,000 units, a 1.1% increase from a year earlier. The rise in permits indicates some planned activity ahead even as groundbreakings slowed.
When multifamily structures such as apartment buildings are included, total new home starts fell 12.4% to a rate of 1.239 million in July. Economists polled by Reuters had expected an annualized pace of 1.35 million.
On the permitting side, overall residential construction permits increased 5.0% to a rate of 1.443 million units, topping economists' estimates of a 1.37 million permit run.
The broader residential market remains constrained by affordability pressures and sales weakness, according to the Census Bureau release. High mortgage interest rates combined with a pipeline of unsold new homes have damped demand and complexed builders' ability to move inventory.
Mortgage borrowing costs have shown only slight easing. The contract rate on a 30-year fixed-rate mortgage ticked down in the week ended Aug. 7 - the first weekly decline since mid-June, according to the Mortgage Bankers Association. Even with that move, the rate stood at 6.77%, near its highest level in more than a year.
Sentiment among construction firms displayed a small, unexpected improvement earlier this week, according to the National Association of Home Builders. Despite that uptick, the trade group said builders' confidence remains considerably subdued in the face of economic uncertainty, high mortgage rates and steep building costs, factors the report said are aggravated by the U.S.-led war with Iran.
The statistics paint a picture of a market struggling with elevated financing costs and excess new inventory even as permit activity suggests some continued planning and potential for future construction.
Key metrics from the July report:
- Single-family starts: -9.9% month-over-month to 808,000 (seasonally adjusted annual rate); -15.7% year-on-year.
- Single-family permits: +2.5% to 894,000; +1.1% year-on-year.
- Total new home starts (including multifamily): -12.4% to 1.239 million; economists had forecast 1.35 million.
- Overall residential permits: +5.0% to 1.443 million; economists had forecast 1.37 million.
- 30-year fixed mortgage contract rate: 6.77% as of the week ended Aug. 7, after a slight weekly dip.