July Housing Starts Tumble to Levels Consistent With Home Sales

US private construction is likely to remain a drag on economic growth because excess housing supply, weak affordability and slower population growth are keeping residential building below prior highs.

• Total housing starts fell 12.4% in July, while single-family starts declined 9.9% to an annualized 808,000 units, their lowest level since late 2022.
• Single-family construction has generally trended down since early 2022 after the pandemic shifted households toward exurbs such as Miami, Dallas and Atlanta and stimulated excess new-home supply.
• New-home prices rose sharply in 2020–2021 and mortgage rates increased in 2022–2023, reducing affordability, while apartments started in 2021–2023 added to rental supply as they were completed over the past three years.
• The author argues that construction contributes to GDP growth only when the housing stock accelerates; the pullback in both single- and multifamily building has therefore dragged on growth.
• Manufacturing construction nearly tripled from early 2022 to mid-2024 on the Chips Act and AI investment, but it has since fallen 25% from its 2024 peak despite remaining nearly 80% above its early-2022 level.

Takeaway: Construction is unlikely to support growth soon because neither population and housing-stock growth nor housing affordability is expected to improve sharply, although builders have so far tolerated higher inventories than anticipated.