New home construction picked up a bit in July, helped largely by a surge in new apartment projects, even as high mortgage rates and economic uncertainty continued to weigh on the broader
housing market.
The Commerce Department reported Tuesday that single-family housing starts – the bulk of U.S. homebuilding – rose 2.8% to an annual rate of 939,000 units. Building permits, which signal future construction, also inched up 0.5% to 870,000 after four straight months of declines.
Overall housing starts climbed 5.2% to a 1.43 million-unit pace, thanks to strong growth in apartment construction. Groundbreaking for multi-family projects jumped 11.6% to 470,000 units – the highest level since May 2023. After slumping for much of the past two years, apartment building has now surged more than 50% in just two months.
But the rebound may not last. Total building permits fell 2.8% in July to a five-year low, pulled down by a nearly 10% drop in permits for multi-family projects. Economists had expected housing starts to decline, making the July numbers a surprise upside – but the permit data hints at weaker activity ahead.
Mortgage Rates and Economic Headwinds
The housing market is still contending with elevated mortgage rates and high home prices, both of which are keeping many buyers on the sidelines. The average 30-year fixed mortgage rate fell to 6.58% last week, the lowest since October, according to Freddie Mac. Rates have eased by nearly half a point since January, helped by growing expectations that the Federal Reserve will cut interest rates in September.
Even so, borrowing costs remain well above pre-pandemic levels. Combined with high prices, that’s cooled demand and left more homes sitting on the market – inventory levels are now near highs last seen in late 2007. A recent National Association of Home Builders survey found that more than a third of builders are offering price cuts to lure buyers.
Impact on the Economy
The slowdown in housing has weighed on the broader U.S. economy. Residential investment shrank in both the first and second quarters, acting as a drag on overall growth. Economists expect housing to remain a weak spot through the current quarter, though some believe the sector could start contributing again in early 2026.
Jeffrey Roach, chief economist at LPL Financial, put it this way: “For Q3, we expect residential investment will drag on GDP growth, but that should reverse in Q1 2026.”
