Homebuilding plummeted in July as both homebuyers and sellers continue to lose confidence in the market.
Housing starts fell by a shocking 9.6% to a seasonally adjusted annual rate of 1.446 million units last month, according to new data released by the Commerce Department.
This is their lowest rate since February 2021 and significantly below market expectations of 1.53 million. Last month’s revised data put starts at a rate of 1.599 million units.
A drop this big suggests the housing market still has room to contract in the third quarter of this year.
Ian Shepherdson of Pantheon Macroeconomics called the data “terrible” in a tweet Tuesday.
Single-family starts fell 10.1%, their lowest in two years, while starts for units in buildings with five units or more dropped by 10%.
Applications to build also dropped, down 1.3% to a rate of 1.674 million.
Starts fell in the Midwest, South, and West, but rose in the Northeast as buyers looking for affordable homes turn their attention to an area that did not see the same pandemic migration spikes as the warmer parts of the country.
The data comes on the heels of a disturbing drop in builder confidence, which has been falling for eight straight months now. The index fell below its break-even measure of 50 for the first time since May 2020, while buyer traffic dropped to its lowest point since April 2014.
NAHB Chairman Jerry Konter called the results a “troubling sign that consumers are now sitting on the sidelines due to higher housing costs…”
Shepherdson called NAHB’s data “Grim, and probably not the floor… The collapse in the NAHB index points to clear and substantial downside risk for housing construction over the next few months, as builders try to manage their excess inventory. That will be impossible without hefty price declines, now that developers are competing with rapidly rising inventory in the existing homes market. In short, the housing downturn has some way yet to run.”