The residential construction sector hit a significant slowdown in July, with both housing starts and permits showing notable declines. Builders are facing increasing challenges, from rising loan rates to persistent labor shortages, that are putting pressure on an already strained industry. As the numbers reveal, this downturn could signal a tough road ahead for the housing market.

Housing Starts Plummet: The Lowest in Over Four Years

In July, the U.S. Census Bureau and the Department of Housing and Urban Development reported a sharp decline in housing starts. The overall starts fell by 6.8% from June, hitting a seasonally adjusted annual rate of 1.238 million units, a 16% drop from July 2023. This marks the lowest level of housing starts in over four years.

• Single-Family Starts: These were particularly hard-hit, dropping by 14.1% from June to an annual rate of 851,000 units, representing a 14.8% year-over-year decrease.
• Multifamily Starts: Despite an 11.7% increase from the previous month, multifamily starts are still down 21.8% compared to July 2023.

On a non-adjusted basis, July saw the start of 113,000 residential units, including 79,800 single-family homes, both figures significantly lower than in June.

Permitting Also Slows: A Less Severe But Concerning Decline

While the decline in permitting wasn’t as steep as the drop in housing starts, the numbers are still troubling. July saw an annual rate of 1.396 million permits issued, down 4.0% from June and 7.0% lower than a year earlier.

• Single-Family Permits: These remained relatively stable, with only a slight decrease from the previous month, but were still down 1.6% compared to July 2023.
• Permits for Multifamily Buildings: This category experienced a significant decline, with permits dropping to 408,000 units, a 12.4% monthly decline and an 18.2% decrease year-over-year.

Overall, 125,600 permits were issued in July, including 85,600 for single-family homes, figures that closely mirror those of June.

Economic and Labor Pressures: Builders Struggle to Keep Up

The slowdown in housing starts and permits aligns with the latest surveys from the National Association of Home Builders (NAHB). According to Robert Dietz, NAHB’s chief economist, the decline mirrors the growing concerns among buyers about affordability and the various headwinds builders are facing. Elevated loan rates, labor shortages, and ongoing supply chain disruptions are all contributing to the current slump in construction activity.

Regional Disparities: Northeast Sees Gains Amidst National Decline

The downturn in housing starts and permits wasn’t uniform across the country. The Northeast bucked the trend, seeing a 42.6% increase in starts from June and a 45.1% year-over-year increase. In contrast, the Midwest, South, and West regions all experienced declines.

• Midwest: Housing starts dropped by 1.7% month-over-month and year-over-year.
• South: This region saw a significant 13.6% monthly decline and a 20.0% drop compared to July 2023.
• West: The decline was even more pronounced, with starts falling 12.0% from June and 31.9% year-over-year.

Permitting followed a similar pattern, with the Northeast seeing gains while the other regions experienced declines, further highlighting the uneven impact of the current challenges facing the construction industry.

Year-to-Date Performance: Mixed Results Amid Growing Concerns

Despite the weak numbers in July, year-to-date figures show some resilience in the industry. So far, 804,900 homes have been started in 2024, a 4.9% decline from the same period last year. Single-family starts have actually increased by 11.4% to 603,100 units, while multifamily starts have dropped significantly by 35.1% to 193,200 units.

Completions, however, tell a more positive story, with year-to-date totals up 9.6% to 899,300 units, and single-family completions rising by 1.7% to 576,700 units.

A Tough Road Ahead for Builders

As builders navigate the current headwinds, the housing market faces a challenging future. The steep declines in starts and permits suggest that the construction sector may continue to struggle in the coming months, especially if economic pressures and labor shortages persist. With regional disparities adding another layer of complexity, the industry will need to adapt to a rapidly changing landscape.

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