Housing starts rise to five-month high, led by multifamily

Housing starts in the US climbed in July to five-month high, led by the strongest pace of multifamily construction in more than two years.

New residential construction increased 5.2% last month to an annualized rate of 1.43 million homes, according to government figures released Tuesday. That was above all forecasts in a Bloomberg survey of economists.

Multifamily starts, which tend to be volatile, increased nearly 10% to the strongest pace since mid-2023. Starts of single-family homes, which make up the largest share of home construction, rose 2.8% in July to an annualized 939,000.

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Despite the July pickup in starts, the nation’s homebuilders have grown more cautious in the past couple of years as a doubling of mortgage rates kept many homeowners locked in place. That’s restrained demand and contributed to the biggest supply of new homes since 2007. While builders have cut prices and offered generous incentives, residential construction has been a drag on the economy in four of the last five quarters.

The number of one-family homes under construction fell in July to the slowest pace since February 2021, the report showed. Builders have signaled a slowdown in spec homes in particular, or those built without a signed contract.

“Builders are trying to thin the construction pipeline to get those inventories down,” Stephen Stanley, chief economist at Santander US Capital Markets, said in a note. “So far, it is not working. This is why I expect that residential construction activity is likely to remain relatively soft for the next quarter or two.”

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The home construction figures will help economists shape their estimates for third-quarter gross domestic product. Prior to the starts report, the Federal Reserve Bank of Atlanta’s GDPNow forecast had penciled in essentially no contribution from residential investment.

Building permits, an indicator of future construction, decreased 2.8% to an annual rate of 1.35 million — the weakest since June 2020. Single-family authorizations climbed for the first time since February. Permits for new multifamily projects declined.

In addition to many Americans putting off buying a new home, many have also refrained from taking on big home-improvement projects. On Tuesday Home Depot Inc. — the world’s largest home-improvement retailer — reported comparable sales that were less than analysts had expected.

New construction in the South rose 19.2%, the most this year, while starts in the Midwest climbed more than 33% on multifamily projects.

The new residential construction data are volatile, and the government report showed 90% confidence that the monthly change ranged from a 9.5% drop to a 19.9% gain.

The National Association of Realtors will provide a look at the resale market on Thursday with its release of July existing-home sales.