United States housing starts unexpectedly rose in July, buoyed by a surge in multifamily construction, even as building permits - a key indicator of future demand - fell sharply to their lowest level in more than four years.
The Commerce Department reported on Tuesday that housing starts increased 5.2% to a seasonally adjusted annual rate of 1.428 million units, following an upwardly revised 5.9% jump in June to 1.358 million. Economists had projected a 2.4% decline to 1.29 million.
Apartment projects once again led growth, with multifamily starts climbing 9.9% to an annual pace of 489,000 units in July after surging 33.6% in June.
Single-family homebuilding also firmed, rising 2.8% to a rate of 939,000 after a 3.8% fall the previous month.
Despite the pickup in construction, higher mortgage rates and elevated home prices have restrained demand. President Donald Trump’s broad import tariffs have made the Federal Reserve reluctant to lower rates this year, with officials cautious about the inflationary impact.
“Single-family production continues to operate at reduced levels due to ongoing housing affordability challenges, including persistently high mortgage rates, the skilled labor shortage and excessive regulatory costs,” said Buddy Hughes, chairman of the National Association of Home Builders (NAHB).
Meanwhile, signs of a cooling labour market have strengthened expectations that the Fed will cut rates by a quarter point at its mid-September meeting.
That outlook has already borrowing costs lower. The average rate on a 30-year fixed mortgage fell to 6.58% last week, its lowest since October, according to Freddie Mac.
While down nearly half a percentage point since January, rates remain well above pre-pandemic levels, contributing to softer demand and leaving more supply on the market.
Meanwhile, building permits declined 2.8% to an annual rate of 1.354 million in July, marking the lowest level since June 2020.
The drop was driven by an 8.2% plunge in multifamily permits to 484,000, which outweighed a modest 0.5% rise in single-family permits to 870,000.
Analysts had expected a smaller 0.5% decline to 1.390 million.
Separate data released on Monday by the National Association of Home Builders showed a slight deterioration in builder sentiment. The NAHB/Wells Fargo Housing Market Index slipped to 32 in August from 33 in July, missing expectations for an unchanged reading.
