US housing starts near year-and-a-half low; factory production rebounds

  • Housing starts fell by 9.6%; building permits fall by 1.3%
  • Single-family housing starts fall by 10.1%; permits down 4.3%
  • The housing construction order book increases by 5.0%
  • Manufacturing production rebounds by 0.7%

WASHINGTON, Aug 16 (Reuters) – U.S. home construction fell to its lowest level in nearly a year and a half in July, weighed down by rising mortgage rates and building material prices, suggesting that the housing market could contract further in the third quarter.

The declining fortunes of the housing market have brought fears of a wider economic downturn back on the agenda. But with more data released Tuesday showing industrial production hit a record high last month despite the high interest rate environment, the Federal Reserve is likely to stay on course for aggressive monetary policy tightening.

“Reading the tea leaves on economics hasn’t been this hard in years,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “Industrial production has fallen in every economic recession in history, so this month’s record is not consistent with a slowdown.”

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Housing starts plunged 9.6% to a seasonally adjusted annual rate of 1.446 million units last month, the lowest level since February 2021. Data for June was revised up slightly to a rate of 1.599 million units compared to the previously reported 1.559 million units. Economists polled by Reuters had forecast housing starts to decline at a rate of 1.540 million units.

Single-family housing starts, which account for the largest share of home construction, fell 10.1% to a rate of 916,000 units, the lowest level since June 2020. Single-family home construction decreased in the densely populated Midwest and South, but increased in the West and Northeast.

Housing starts for housing projects of five or more units fell 10.0% to 514,000 units. Multifamily housing construction remains supported by strong demand for rental apartments, as rising borrowing costs put homeownership out of reach for many Americans.

Future housing permits fell 1.3% to a rate of 1.674 million units. Single-family building permits fell 4.3% to a rate of 928,000 units. Permits for multi-family housing projects rose 2.5% to 693,000 units.

The Fed, which is struggling to bring inflation back to the US central bank’s 2% target, has raised its key rate by 225 basis points since March. Mortgage rates, which move in tandem with US Treasury yields, rose further.

The 30-year fixed-rate mortgage is hovering around an average of 5.22%, down from 3.22% at the start of the year, according to data from mortgage finance agency Freddie Mac.

Residential fixed investment fell at its fastest pace in two years in the second quarter, contributing to the second consecutive quarterly decline in gross domestic product during this period. More pain is likely yet to come for the housing market.

A survey on Monday showed the National Association of Home Builders/Wells Fargo Housing Market Sentiment Index fell for an eighth consecutive month in August, dropping below the breakeven 50 mark for the first time since May. 2020. Rising construction costs and mortgage rates were largely responsible for the decline.

Stocks on Wall Street were trading mixed. The dollar remained stable against a basket of currencies. US Treasury prices fell.


While housing is struggling, another interest rate sensitive sector is moving forward for now.

In a separate report on Tuesday, the Fed said manufacturing output rebounded 0.7% in July after falling 0.4% in June.

Economists had forecast factory output to rise 0.2%. Production rose 3.2% from July 2021. The manufacturing sector, which accounts for 11.9% of the US economy, remains supported by strong demand for goods, although spending is gradually returning to services.

But the risks are growing as retailers sit on excess inventory, particularly of clothing. A strong dollar resulting from tighter monetary policy could make US exports more expensive.

Production at auto factories jumped 6.6% last month. Excluding motor vehicles, manufacturing rose 0.3%. The production of durable manufactured consumer goods increased by 3.5%, while that of non-durable consumer goods fell by 0.3%.

Mining output rose 0.7%, continuing to be supported by oil and gas extraction. Utilities output fell 0.8%. Rising manufacturing and mining output helped push the overall industrial production index up 0.6% to a record high of 104.8. Industrial production remained unchanged in June.

Industrial production

The strong manufacturing output contrasts sharply with regional factory surveys which showed a sharp deterioration in the business climate.

“Recessions are normally a loss of confidence, and it looks like manufacturer sentiment is frayed,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania. “However, it’s important to look at what manufacturers are doing rather than saying. At this time, manufacturers are not acting as if the economy is in or heading for a recession.”

Although higher borrowing costs are cooling the housing market, an outright collapse is unlikely due to a critical shortage of single-family homes for sale, which is keeping prices high. Fewer homes being built due to financial constraints could pose a problem for the Fed, which seeks to lower house prices by slowing demand for homes.

“The drop in construction will limit housing supply and potentially mitigate the impact of rising rates on house prices,” said Isfar Munir, an economist at Citigroup in New York.

The number of homes approved for construction that have yet to start jumped 5.0% to 296,000 units. The order book for single-family homes increased by 2.1% to 146,000 units, with the completion rate for this segment falling by 0.8%.

The stock of single-family dwellings under construction fell 1.2% to 816,000 units.

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Reporting by Lucia Mutikani Editing by Mark Porter, Mark Potter and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

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