WASHINGTON -- The pace of U.S. home construction fell a sharp 4% in July despite strong demand from would-be buyers, held back by a shortage of skilled labor and inexpensive land.
The Commerce Department said Friday that housing starts slipped last month to a seasonally adjusted annual rate of 1.19 million units. So far this year, housing starts have declined 3.1%.
Though there was a slight 1.3% uptick in the construction of single-family homes last month, the gain was offset by a 17.2% plunge in the apartment category.
The construction slowdown, which has persisted all year, is thwarting prospective homebuyers. The solid job market and falling mortgage rates have increased interest among people seeking homes, yet the shortage of available homes and rising prices have dampened sales. The slowdown in construction, which in turn contributes to the scarcity of available housing, may contribute to a weakening of the overall economy, economists say.
Robert Frick, corporate economist at the Navy Federal Credit Union, said July's report showed that low mortgage rates were not enough to pull the U.S. home-building market out of its slump. The average rate on a 30-year fixed mortgage is 3.6 percent, according to Freddie Mac, its lowest level since November 2016.
"A dearth of cheap lots and persistent labor shortages are constraining builders, especially for homes costing less than $300,000, which have the greatest demand," Frick said.
In July, home construction fell across the Northeast, Midwest and South. It rose 1.3% in the West, where home construction has fallen by 12.3% this year.
Some economists found cause for optimism in the report. Matthew Pointon, a property economist at Capital Economics, noted that while apartment construction is a volatile measure, last month's increase in construction of single-family homes was a sign of some improvement in the housing market.
"Single-family starts are showing a slow recovery," he said.
Applications for housing permits, an indicator of future construction, rose 8.4%, to a 1.34 million rate, exceeding estimates. The monthly increase was the largest in more than two years. Apartment complexes accounted for most of the increase. Data out Thursday showed sentiment among U.S. homebuilders has risen this month to match this year's high, but a weaker outlook suggests upward momentum in the months ahead may prove fleeting.
Data out next week are forecast to show existing-home sales, which make up the majority of the U.S. housing market, increased in July while the pace of new-home sales eased.
A separate report Friday showed that U.S. consumer sentiment has plummeted to a seven-month low this month on growing concerns about the economy even as the labor market shows few signs of weakening from robust levels.
The University of Michigan's preliminary sentiment index slumped to 92.1 from July's 98.4, missing all forecasts in Bloomberg's survey of economists. The gauge of current conditions decreased to 107.4 while the expectations index dropped to 82.3, bringing both readings to the lowest levels since early this year.
The second-lowest confidence reading of Donald Trump's presidency shows consumers may be poised to offer less of a boost to the record economic expansion amid volatility in financial markets and head winds from abroad. Personal consumption, the biggest part of the economy, was the largest driver of the expansion in the second quarter.
Information for this article was contributed by Bani Sapra of The Associated Press; and by Reade Pickert and Ryan Haar of Bloomberg News.
Business on 08/17/2019