U.S. single-family homebuilding fell sharply in July to the lowest in more than three-and-a-half years and contract signings for purchases of existing homes also slid in the latest signal that the housing market remains under pressure from higher mortgage rates and economic uncertainty from the Iran war.
Single-family housing starts, which account for the bulk of homebuilding, dropped 9.9% last month to a seasonally adjusted annual rate of 808,000 units, the Commerce Department's Census Bureau said on Tuesday. That was the lowest since November 2022.
Single-family homebuilding slid 15.7% year-on-year in July.
Permits for future construction of single-family homes - an indicator of future new construction activity - rose 2.5% last month to a rate of 894,000 units. They were up 1.1% year-on-year in July for only the second yearly increase in the past two years, though the issuance rate remains near the slowest in three years.
"Until mortgage rates decline and allow builders to unload currently completed homes or those under construction, we expect home builders to remain hesitant to make significant investments in new projects," Nationwide Senior Economist Ben Ayers said.
Total new home starts - including multifamily structures such as apartments - fell 12.4% to 1.239 million in July. Economists polled by Reuters had estimated an annualized rate of 1.35 million.
Overall new issuance of residential construction permits rose 5.0% to a rate of 1.443 million units. Economists had estimated a permit run of 1.37 million.
Contract signings for existing homes - which become completed sales transactions typically a month or two later - also fell in July, the National Association of Realtors reported Tuesday. They were down 2.3% on the month to the lowest level since January.
The residential real estate market remains in a deep rut, with high mortgage interest rates and limited supply of homes on the market hurting affordability and sales rates.
“The highest mortgage rates of the year hit right in the middle of summer, and that's pulling back contract signings,” NAR Chief Economist Lawrence Yun said in a statement. “Home prices are at record highs so houses for sale are sitting on the market longer, and fewer buyers are bidding above the asking price than a year ago, though there are large local market variations.”
The contract rate on a 30-year fixed-rate mortgage, the most popular U.S. home loan, ticked lower in the week ended August 7 for the first time since mid-June, the Mortgage Bankers Association reported last week. Still, at 6.77% it remains near the highest in more than a year.
On Monday the National Association of Home Builders reported an unexpected uptick in sentiment among construction firms, but their confidence overall remains significantly subdued in the face of economic uncertainty, high mortgage rates and steep building costs aggravated by the U.S.-led war with Iran.
Factory output rises on AI-related demand
The weak housing market stands in contrast to a robust factory sector, buoyed yet again by hefty AI investment activity that is driving demand for high-tech equipment and the supplies needed to build and run massive data centers.
The Fed reported its manufacturing output index rose 0.2% in July on the heels of an upwardly revised 0.3% increase in June. The index was at its highest since April 2022.
"The usual suspects, including AI-linked industries, drove industrial production, and particularly durable goods manufacturing, higher," Bernard Yaros, lead U.S. economist at Oxford Economics, said in a note.
Business equipment production rose 0.8%, led by a 1.5% gain in information-processing equipment and a 1.4% gain in industrial supplies, which offset a decline in transit equipment output. Semiconductor output rose 2.4% and computer and peripheral tech gear production rose 1.8%.
Oxford's Yaros expects the momentum to broaden out and lift other sectors beyond high tech. "AI is increasingly spilling over into other investment goods beyond information processing equipment," he said.
Defense production also rose 1.8% amid continued high spending from the U.S.-led war with Iran.
Motor vehicle assemblies slipped to 10.42 million on a seasonally adjusted annualized rate from 10.68 million in June. Heavy and medium truck production - an indicator of demand from trucking and delivery companies - fell to the lowest since March.
SPY•
