Homebuilding Hits Its Lowest Point in 18 Months

WASHINGTON—Homebuilding in the United States fell to its lowest level in nearly 18 months in July as higher mortgage rates and prices for construction materials weighed down growth.

Some analysts are now suggesting the housing market could contract further during Q3. Despite the slowdown, strength in the broader economy and ongoing inflation are likely to mean the Federal Reserve will continue to raise rates when it next meets in September.

“Reading the tea leaves on the economy hasn’t been this difficult in years,” Christopher Rupkey, chief economist at FWDBONDS in New York, told Reuters. “Industrial production has turned down in every economic recession in history, so the record high this month is not consistent with a downturn.”

According to new data, housing starts plunged 9.6% to a seasonally adjusted annual rate of 1.446 million units last month, the lowest level since February 2021. Data for June was revised slightly higher to a rate of 1.599 million units from the previously reported 1.559 million units.

Additional Data Points

The data further show:

Single-family housing starts, which account for the biggest share of homebuilding, dropped 10.1% to a rate of 916,000 units, the lowest level since June 2020. Single-family homebuilding decreased in the Midwest and the densely populated South, but rose in the West and Northeast, Reuters reported.
Starts for housing projects with five units or more declined 10.0% to a rate 514,000 units. Multi-family housing construction remains supported by strong demand for rental apartments, with rising borrowing costs “pushing homeownership out of the reach of many Americans,” the report noted.
Permits for future homebuilding fell 1.3% to a rate of 1.674 million units. Single-family building permits dropped 4.3% to a rate of 928,000 units. Permits for multi-family housing projects increased 2.5% to a rate of 693,000 units.
Residential fixed investment declined at its steepest pace in two years in the second quarter, contributing to the second straight quarterly drop in gross domestic product during that period. “More pain is likely yet to come for the housing market,” Reuters said.

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