Real Estate

Home Building Fell Sharply in July as Costs Increased

House construction in the U.S. continued to slow in July, as high inflation and higher mortgage rates make it more expensive to build and buy property.

Housing starts in July fell 9.6% from the month before to a seasonally adjusted annual rate of 1.45 million, the Commerce Department said Tuesday, down from a revised 1.60 million the prior month. Economists surveyed by The Wall Street Journal expected the government to report 1.52 million housing starts for July.

Building permits declined 1.3% to 1.7 million.

The declines come amid moves by the Federal Reserve to raise interest rates to combat inflation and cool the economy. The house construction and permits figures can be volatile month to month.

Gus Faucher, chief economist at PNC Financial Services Group, said the decline in housing construction makes sense because building and buying houses is tied to expectations for the economy and interest rates. Still, he said that the labor market remains strong and consumers are still spending, trends that benefit the overall economy.

“When the Fed increases rates, housing activity slows,” said Mr. Faucher.

Mortgage rates have declined recently but remain near high levels. The average rate on a 30-year fixed-rate mortgage was 5.22% last week, according to a survey by mortgage giant Freddie Mac. A year before the rate was under 3%.

Higher mortgage costs make buying a home more expensive, as buyers pay more every month.

Confidence from house builders has also been declining. The sentiment of home builders fell to its lowest level in more than a year, according to the National Association of Home Builders/Wells Fargo housing-market index. The monthly confidence index fell to 49 in August, the lowest since May 2020, from 55 in June, an indication that builders think they are in a housing recession.

The National Association of Realtors will release the latest sales figures for previously owned homes on Thursday. Economists surveyed by the Journal expect that sales declined 6.1% in July.


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