Housing Starts Dropped in July as Homebuilder Sentiment Waned


Housing starts continued to disappoint in July, dropping 7% compared with June to reach a seasonally adjusted annual rate of 1.59 million, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.

However, housing starts were up 2.5% compared with July 2020, when the annual rate was at 1.49 million.

Starts of single-family homes in July were at a rate of 1.11 million, a decrease of 4.5% compared with June. Starts of multifamily dwellings (five units or more per building) were at a rate of 412,000, a decrease of 13.6% compared with June.

Building permits were at a seasonally adjusted annual rate of 1.63 million, an increase of 2.6% compared with June and an increase of 6% compared with July 2020.

Permits for single-family homes were at a rate of 1.05 million, a decrease of 1.7% compared with June. Permits for multifamily units were at a rate of 532,000, an increase of 11.1% compared with June.

Housing completions were at a rate of 1.39 million, an increase of 5.6% compared with June and an increase of 3.8% compared with July 2020.

“The latest starts numbers reflect declining builder sentiment as they continue to grapple with high building material prices, production bottlenecks and labor shortages,” says Chuck Fowke, chairman of the National Association of Home Builders (NAHB), in a statement. “Policymakers need to prioritize the U.S. supply chain for items like building materials to ensure builders can add additional inventory the housing market desperately needs.”

“The decline in single-family permits indicates that builders are slowing construction activity as costs rise,” adds Danushka Nanayakkara-Skillington, assistant vice president for forecasting and analysis for NAHB. “Starts began the year on a strong footing but in recent months some projects have been forced to pause due to both the availability and costs of materials.”

Separately, Odeta Kushi, deputy chief economist for First American, says the one bright spot in the report is the rise in “the overall number of permits issued, which can signal how much home construction is in the pipeline.”

“The importance of more home building cannot be overstated,” Kushi says. “Inventory has been increasing in recent months, but we have under-built for a decade and July’s month-over-month decline in housing starts isn’t welcome news.

“The number of single-family homes permitted but, not started in July stood at 145,000, approximately 56 percent higher than one year ago as the lack of availability and rising cost of building materials contribute to delays in construction.” Kushi says. “However, this trend has flattened in recent months.

“While single-family starts and permits are above their pre-pandemic pace, the moderation is consistent with builder sentiment,” Kushi says. “August’s homebuilder sentiment fell to its lowest level since July 2020. Yet, it’s important to point out that home builder sentiment is less ‘bullish’ as opposed to actually ‘bearish.’ Less bullish sales conditions and prospective buyer traffic may be related to declining affordability in recent months.”

Despite some supply chain headwinds, the outlook for home building is generally positive, as “the number of residential construction workers has increased in 11 out of the last 12 months and is above the pre-pandemic level,” Kushi adds.

In addition, “lumber prices are falling from record highs and the fundamentals driving new home sales are strong.”

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