U.S. housing starts fall sharply; permits increase - reuters.com

A "For Sale" sign is posted outside a residential home in the Queen Anne neighborhood of Seattle, Washington, U.S. May 14, 2021. REUTERS/Karen Ducey

Housing starts fall 7.0% in July
Single-family starts drop 4.5%; multi-family dive 13.1%
Building permits rise 2.6%; single-family fall 1.7%

WASHINGTON, Aug 18 (Reuters) - U.S. homebuilding fell more than expected in July, the latest sign that surging construction costs and home prices continued to constrain the housing market early in the third quarter.

Though the report from the Commerce Department on Wednesday showed a rebound in building permits last month, the increase was led by the volatile multi-family home segment, which will do little to ease an acute housing shortage. The number of houses authorized for construction but not yet started rose, indicating builders remained hesitant to undertake new projects.

"There is a record-high level of backlogs of units that have been authorized but not started over the last four months, which we see as a corroborating sign of supply-side challenges, and we do not interpret this report as a sign of flagging demand for housing," said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.

Housing starts dropped 7.0% to a seasonally adjusted annual rate of 1.534 million units last month. Data for June was revised up to a rate of 1.650 million units from the previously reported 1.643 million units.

Homebuilding fell in the Northeast, Midwest and West, but rose in the populous South. Economists polled by Reuters had forecast starts would fall to a rate of 1.600 million units. Starts increased 2.5% on a year-on-year basis in July.

Single-family starts, which account for the largest share of the housing market, fell 4.5% to a rate of 1.111 million units. Starts for the multi-family segment tumbled 13.1% to a rate of 423,000 units.

Permits for future homebuilding rose 2.6% to a rate of 1.635 million units in July. Single-family permits fell 1.7% to a rate of 1.048 million units. Permits for multi-family housing projects jumped 11.2% to a rate of 587,000 units.

The report followed on the heels of a survey from the National Association of Home Builders on Tuesday showing confidence among single-family homebuilders dropped to a 13-month low in August because of higher material costs and home prices, which are cooling demand for houses. read more

U.S. stocks opened lower. The dollar was steady against a basket of currencies. U.S. Treasury prices fell.

HIGH HOUSE PRICES

Building costs remain an issue even though lumber futures have tumbled from a record high of $1,711 per thousand board feet in May, with the contract for delivery in November trading at around $483 as of Tuesday. Land and labor shortages persist.

Homebuilding has struggled to gain traction since racing to a rate of 1.725 million units in March, which was the highest level since June 2006.

Housing demand boomed during the COVID-19 pandemic, which fueled a migration from cities to the suburbs and other low-density areas as Americans sought spacious accommodations for home offices and schooling. The robust demand, also driven by record-low mortgage rates, far outpaced supply, leading to double-digit annual growth in home prices.

But the pandemic tailwind is gradually fading as vaccinations allow companies to recall workers back to offices in city centers and schools reopen for in-person learning for the new academic year.

Potential homebuyers are also balking at the high house prices. A report from the Mortgage Bankers Association on Wednesday showed applications for loans to buy a home decreased last week.

Residential investment contracted in the second quarter after three straight quarters of double-digit growth.

Last month, building permits fell in the Northeast and South. They rose in the West and Midwest.

The backlog of homes yet to be started increased 2.6%. Housing completions jumped 5.6% to a rate of 1.391 million units last month. Single-family home completions increased 3.6% to a rate of 954,000 units.

Realtors estimate that single-family housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month to close the inventory gap.

The stock of housing under construction climbed 0.4% to a rate of 1.373 million units last month.

Reporting by Lucia Mutikani; Editing by Paul Simao and Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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