New housing construction in the U.S. hit its lowest level in more than four years, amid high borrowing costs and house prices.
Construction of new homes in the United States fell for the third consecutive month in July to its lowest level in more than four years, suggesting deepening housing market woes.
The Commerce Department’s monthly new residential construction report,
released on Aug. 16, shows that privately owned housing starts in July stood at a seasonally adjusted annual rate of 1.24 million. That’s a 6.8 percent decline from a month ago and 16 percent lower than the same month in 2023. It’s also the lowest level of homebuilding activity since May 2020, when
there were 1.053 million housing starts.
Single-family homebuilding, which accounts for the bulk of new housing, fell by 14.1 percent from June to July, to a seasonally adjusted annual rate of 851,000 units, the lowest level since March 2023. The year-over-year drop in July was 14.8 percent.
The decline put a number of industry analysts on edge.
“Based on our homebuilder survey, the June to July drop in single-family starts looks worse than the normal seasonal dip,” Rick Palacios Jr., director of research at John Burns Research & Consulting, said in a
post on social media platform X, formerly known as Twitter.
Analyst Warren Pies, founder of 3Fourteen Research, said in a
post on X that if sustained, the decline in housing starts is likely to lead to a reduction in residential construction jobs and is consistent with a recession.
Housing starts tend to be a leading indicator for the economy, according to analyst Charlie Bilello, who
wrote that he sees “recessionary signals building.”
While the disruption caused by Hurricane Beryl has been partially blamed for the depth of the slowdown, analysts pointed to other factors, including high interest rates and inflation, as July was the fifth consecutive month of declining single-family housing starts.
“High interest rates for construction and development loans as well as ongoing challenges regarding labor shortages and higher prices for many building materials continued to slow the building market this summer,” Robert Dietz, chief economist and senior vice president for economics and housing policy for the National Association of Home Builders (NAHB),
wrote in a note.
The decline in new home construction aligns with the
latest insights from the NAHB’s latest homebuilder survey, which indicates that buyers continue to face significant affordability challenges. Builders, meanwhile, are struggling with high loan costs, labor shortages, limited availability of buildable lots, and ongoing supply chain disruptions affecting certain construction materials.
The NAHB survey also shows that confidence among U.S homebuilders slumped in August to its lowest point of the year, as high mortgage rates and borrowing costs pressured both customers and builders.
Although mortgage rates have been holding below the 7 percent mark in recent weeks, housing prices continue to rise, putting pressure on prospective homebuyers.
Data
released on Aug. 13 by the National Association of Realtors (NAR) show that the median price of a single-family existing home in the United States grew by 4.9 percent over the past year, to $422,100.
“It’s terrific news for homeowners who are moving ahead in wealth gains,” NAR chief economist Lawrence Yun said in a statement. “However, it’s difficult for those wanting to buy a home as the required income to qualify has roughly doubled from just a few years ago.”
In addition to higher prices, first-time buyers faced the challenge of limited inventory in the second quarter, as noted by the NAR, which predicted that housing affordability would improve in the coming months as more supply reaches the market. However, the disappointing housing starts data released by the Commerce Department on Aug. 16 indicate that supply-side relief may be slower to materialize than initially hoped.
Rising housing costs continue to be a significant factor driving persistent inflation.
Despite overall inflation
easing to 2.9 percent in July—the first drop below 3 percent since 2021—the shelter component of the consumer price index unexpectedly increased by 0.4 percent, twice the rate of June’s rise.
Over the past year, the shelter index climbed by 5.1 percent, accounting for more than 70 percent of the total 12-month increase in core inflation, which excludes food and energy,
according to data from the Bureau of Labor Statistics.
