Housing starts fell sharply in July

Summary

Rate environment still a headwind for residential

Residential construction continues to downshift under the pressure of high interest rates. Total housing starts fell 6.8% during July, a sharper than expected decline driven entirely by yet another pull-back in single-family starts. After out-performing over the past few years, single-family construction is now turning lower amid softening conditions in the new home market.

By contrast, multifamily starts improved for the second consecutive month in July. However, multifamily permits declined and gave back much of June's large gain, which suggests that multifamily development remains weak despite firming apartment market conditions and prospects for lower financing costs in the near future.

All told, the residential sector has yet to respond to lower mortgage rates, which have moved down in recent weeks amid increased expectations for rate cuts from the Federal Reserve. On top of the decline in new construction, mortgage applications for purchase have remained tepid in recent weeks. What's more, the NAHB Housing Market Index once again fell during August. Less restrictive monetary policy should eventually provide a lift, but the lethargic response so far is a reminder that a more challenging macroeconomic backdrop is likely adding to the headwinds posed by high interest rates.

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