(Bloomberg) -- U.S. housing starts declined more than expected in July, adding to evidence that supply and labor constraints are holding back home construction while demand has slowed.
Residential starts dropped 7% last month to a three-month low 1.53 million annualized rate, according to government data released Wednesday. Building permits, however, climbed 2.6% in July due to a pickup in applications for multifamily dwellings.
Housing starts were projected to cool slightly to a 1.60 million pace while construction permits were forecast to rise, according to the median estimates in a Bloomberg survey of economists.
While builders continue to grapple with limited availability of land, labor and materials, the figures suggest firms are making some headway. The number of single-family houses under construction but not yet completed in July increased to 689,000 -- the most since 2007.
A pickup in construction would help put more homes on the market and slow the price gains that have led to a pullback in sales.
“While housing demand appears to have peaked, we believe it is being held back by high prices and lack of inventory,” Jefferies' Aneta Markowska and Thomas Simons said in a note. “So, to the extent supply improves, we should see a rebound in demand, although that might not happen until next year.”
High Prices
Lean inventory, high construction costs and an groundswell in housing demand have pushed prices skyward. A record share of respondents in a University of Michigan survey of consumers in August noted it was a bad time to buy a home because of high prices.
A recent decline in lumber prices paired with any improvement in the availability of supplies and labor should support future construction.
Meantime, the Federal Reserve has signaled it will be some time before policy makers raise the benchmark interest rate, suggesting borrowing costs will remain favorable for some time.
While applications to build increased to an annualized 1.64 million units in July, permits for single-family homes dropped to a one-year low. A measure of homebuilder sentiment out Tuesday fell for a third month to its lowest level in a year, underscoring how high materials' prices and ongoing supply shortages are weighing on builders.
The data suggest backlogs remain elevated. The number of one-family homes authorized for construction but not yet started -- a measure of backlogs -- was little changed at 145,000.
Digging Deeper
- Single-family starts declined 4.5% to an annualized pace of 1.11 million units
- Multifamily starts -- which tend to be volatile and include apartment buildings and condominiums -- decreased 13.1% to 423,000
- Ground-breaking declined in three of four regions. The South, the nation's largest market, rose 2.1% due to more multifamily projects
- Data on sales of new and existing homes will be released next week
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