Single-family home construction surged in July on an acute housing shortage, but a rise in mortgage rates to near the highest levels in two decades could slow growth in new construction.
Single-family housing starts, which account for the bulk of housing construction, rose 6.7% last month to a seasonally adjusted annualized rate of 983,000 units, the Commerce Department said on Wednesday.
Data for June has been revised to show a drop in launches to 921,000 units instead of the previously reported 935,000 units.
The surge in groundbreaking was most notable in the West, where single-family home foundations increased by 28.5%.
In the Midwest, launches increased 12.5%.
However, they fell by 3.4% in the north-east and by 1.3% in the densely populated south.
The real estate market, suffering from aggressive monetary tightening by the Federal Reserve, is showing signs of stabilizing at lower levels, with housing construction and new home sales actually picking up.
However, any further improvement is likely to be held back by the renewed increase in mortgage rates.
According to mortgage financing agency Freddie Mac, the average interest rate on the popular 30-year fixed-rate mortgage has risen to 6.96% in recent weeks.
The rate is very close to the 7.08% seen in late October and early November, the highest since April 2002.
Mortgage rates near 7% were attributed to the fall in confidence among homebuilders in August, with the National Association of Home Builders noting that more homebuilders were offering incentives to attract buyers as they expected lower sales.
Housing starts of five or more units were flat in July at 460,000 units.
Demand for rental housing is slowing, largely due to higher mortgage rates putting some potential homebuyers out of the way. There is also a record stock of apartment buildings under construction.
Total housing starts rose 3.9% to 1.452 million units in July.
Economists polled by Reuters were forecasting launches to rise to 1.448 million units.
Permits for future single-family home construction rose 0.6% to 930,000 units in July.
Single-family building permits fell in the Northeast but rose in the Midwest and South.
In the West they were unchanged.
Approvals for housing projects of five units or more fell 0.2% to 464,000 units, the lowest since October 2020.
The total number of building permits increased slightly last month by 0.1% to 1.442 million units.
The number of homes approved for construction but not yet started fell 0.4% to 277,000 units.
The single-family housing backlog fell 0.7% to 140,000 units, while the segment’s completion rate rose 1.3% to 1.018 million units.
The stock of single-family homes under construction fell by 0.7% to 678,000 units.
The stock of multifamily units under construction rose 1.1% to 986,000 units, the highest level since the government began collecting data in 1970.