A house under construction in Culver City, a neighborhood of Los Angeles, on Nov. 21, 2020.CHRIS DELMAS/AFP/Getty Images
U.S. single-family home building dropped to near a 1-1/2-year low in July due in part to Hurricane Beryl’s disruption of activity, but rising new housing supply could limit a rebound.
The fifth straight monthly decline in home building reported by the Commerce Department on Friday suggested the housing market remained depressed at the start of the third quarter. Aside from the weather, the housing market remains constrained by higher mortgage rates and house prices.
“Even though lower interest rates should provide ongoing support to new home sales, the existing oversupply in some regional markets could be a bigger constraint than we previously anticipated,” said Paul Ashworth, chief North America economist at Capital Economics.
Single-family housing starts, which account for the bulk of home building, tumbled 14.1 per cent to a seasonally adjusted annual rate of 851,000 units last month, the lowest level since March 2023, the Commerce Department’s Census Bureau said.
Single-family home building plunged 22.9 per cent in the densely populated South, likely depressed by Beryl, which struck Texas early in the month. Starts also plummeted 27.1 per cent in the Northeast. They slipped 1.4 per cent in the West, but increased 16.8 per cent in the Midwest.
Single-family housing starts dropped 14.8 per cent on a year-on-year basis in July. The housing market has weakened following a spring resurgence in mortgage rates. Residential investment, which includes home building, contracted in the second quarter after rising for three consecutive quarters.
“Residential housing construction will not be contributing anything to this quarter’s real GDP growth,” said Christopher Rupkey, chief economist at FWDBONDS.
Mortgage rates have since retreated amid optimism the Federal Reserve will cut interest rates next month. But a jump in new housing inventory to levels last seen in early 2008 could limit any rebound in housing starts.
New construction had been buoyed by a dearth of previously owned homes for sale. But the stock of existing homes has also risen from historic lows. The average rate on the 30-year fixed-rate mortgage has declined to 6.45 per cent from a peak of 7.22 per cent in May.
A National Association of Home Builders survey on Thursday showed home builder sentiment fell to an eight-month low in August. Builders blamed “challenging housing affordability conditions” for the fourth straight monthly drop in confidence.
“It is costly for builders to keep finished homes on the market, builders appear to be increasingly hesitant to put further resources into building up the supply of new homes,” said Daniel Vielhaber, an economist at Nationwide.
Starts for housing projects with five units or more increased 11.7 per cent to a rate of 363,000 units in July. Overall housing starts plunged 6.8 per cent to a rate of 1.238 million units, the lowest level since May 2020. Economists polled by Reuters had forecast starts would fall to a rate of 1.330 million units.
Starts were down 16.0 per cent from a year ago. Permits for future construction of single-family homes slipped 0.1 per cent to a rate of 938,000 units in July. Multi-family building permits dropped 12.4 per cent to a rate of 408,000 units. Building permits as a whole decreased 4.0 per cent to a rate of 1.396 million units.
The number of houses approved for construction that were yet to be started increased 2.6 per cent to 279,000 units. The single-family home building backlog rose 5.1 per cent to 143,000 units.
The completions rate for that housing segment rose 0.5 per cent to 1.054 million units. Overall housing completions declined 9.8 per cent to a rate of 1.529 million units.
The number of housing units under construction decreased 1.6 per cent to a rate of 1.539 million units. The inventory of single-family housing under construction slipped 2.1 per cent to a rate of 653,000 units.