U.S. single-family home construction fell to its lowest level in a year and a half in July, partly due to the disruption to housing activity caused by Hurricane Beryl, but an increase in new home supply may limit any recovery.
Home construction numbers released by the Commerce Department on Friday fell for the fifth straight month, suggesting the housing market remained sluggish as of the start of the third quarter.
Beyond the weather, the housing market remains constrained by rising mortgage rates and home prices.
“Low interest rates should provide continued support for new home sales, but existing oversupply in some regional markets may be a bigger constraint than we previously anticipated,” said Paul Ashworth, chief North American economist at Capital Economics.
Single-family housing starts, which account for the majority of residential construction, fell 14.1% last month to a seasonally adjusted annualized rate of 851,000, the lowest level since March 2023, according to the Commerce Department’s Census Bureau.
In the densely populated South, construction of single-family homes plummeted 22.9%, likely due to the effects of Tropical Storm Beryl, which slammed into Texas earlier this month.
Construction starts in the Northeast also fell sharply, 27.1%.
In the West, it decreased by 1.4 percent, but in the Midwest it increased by 16.8 percent.
The number of detached housing starts in July was down 14.8% compared to the same month last year.
The housing market has weakened after mortgage rates rose again in the spring.
Residential investment, which includes home construction, fell in the second quarter after three consecutive quarters of increases.
“Residential construction is unlikely to contribute anything to real GDP growth this quarter,” said Christopher Rupkey, chief economist at FWDBONDS.
Mortgage rates have since fallen on optimism that the Federal Reserve will cut rates next month.
However, a surge in new housing inventory to levels not seen since early 2008 could limit the recovery in housing starts.
Supply concerns
The shortage of existing homes for sale has led to a surge in new home construction.
But inventory of existing homes is also rising from historic lows.
The average interest rate on a 30-year fixed-rate mortgage fell to 6.45% from a peak of 7.22% in May.
Homebuilder business confidence fell to its lowest level in eight months in August, according to a survey released Thursday by the National Association of Home Builders.
Home builders blamed a “difficult homebuying environment” for the fourth consecutive month of decline in confidence.
“It is costly for homebuilders to keep completed homes on the market, so they appear increasingly hesitant to devote additional resources to increasing the supply of new homes,” said Daniel Feelhaber, an economist at Nationwide.
Construction starts for housing with five or more units rose 11.7% in July to 363,000 units.
Housing starts overall fell 6.8% to 1.238 million units, the lowest level since May 2020. Economists surveyed by Reuters had expected starts to fall to 1.33 million.
The number of construction starts decreased 16.0% compared to the previous year.
Future building permits for single-family homes fell 0.1% to 938,000 in July.
Multifamily building permits fell 12.4% to 408,000 units.
Overall building permits issued fell 4.0% to 1.396 million units.
The number of units permitted for construction prior to the start of construction increased 2.6% to 279,000.
Planned construction starts for single-family homes increased 5.1% to 143,000 units.
Completion rates in the housing sector rose 0.5% to 1,054,000 units.
Overall, the number of completed homes fell 9.8% to 1.529 million units.
The number of housing units under construction fell 1.6% to 1.539 million.
The inventory of single-family homes under construction fell 2.1% to 653,000 units.
