Rising Homebuilding Costs Continue To Weigh on Construction Activity
- Housing starts in July fell 7.0% to 1.534 million units, worse than consensus expectations for a decline to 1.600 million units.
- Residential permits in July advanced 2.6% to 1.635 million units after falling for three straight months.
- Housing will continue to add to economic growth through the rest of this year and in 2022.
Housing starts fell 7.0% in July to 1.534 million units at a seasonally-adjusted annualized rate, worse than consensus expectations for a decrease to 1.600 million units. Starts in June were revised 0.4% higher, to 1.650 million units, from 1.643 million units. Three of four major regions posted declines in housing starts. Housing starts pulled back in the Northeast, Midwest, and West and increased in the South.
Single-family starts fell 4.5% in July to 1.111 million. Multifamily (apartment and condominium) starts fell 13.1% in July to 423,000 at a seasonally-adjusted annualized rate; multifamily starts tend to be more volatile than single-family starts.
Residential construction permits rebounded 2.6% to 1.635 million at a seasonally-adjusted annualized rate in July; June permits were revised 0.3% lower 1.594 million from 1.598 million. Single-family permits fell 1.7% in July to 1.048 million, the lowest level since July 2020. Multi-family permits rose 11.2% in July to 587,000.
Housing continues to support economic growth, but the housing market has shown signs of cooling after several months of extraordinary price growth. Residential fixed investment was a drag on GDP in the second quarter after three strong quarters of growth including a 59.9% annualized growth rate in the third quarter of 2020. Builder confidence as measured by the NAHB Housing Market Index tumbled to a thirteen-month low in August after peaking in November of last year.
Supply chain disruptions, surging prices for construction materials, and shortages of labor and developable land have resulted in lower levels of homebuilding. Supply-side issues should ease over time and labor shortages will improve as schools reopen and extra unemployment insurance benefits expire. Declining affordability, particularly for first-time homebuyers, will soften demand while housing supply should improve through the year.
The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.