US homebuilding fell more than expected in July, the latest sign that surging construction costs and home prices continued to constrain the housing market early in the third quarter of the year.

The Department of Commerce reported that housing starts dropped 7.0% to a seasonally adjusted annual rate of 1.534 million units last month. Data for June was revised up to a rate of 1.650 million units from the previously reported 1.643 million units. Economists polled by Reuters had forecast starts would fall to a rate of 1.600 million units.

Homebuilding fell in the Northeast, Midwest, and West, but rose in the populous South. Starts increased 2.5% on a year-on-year basis in July. Single-family starts, which account for the largest share of the housing market, fell 4.5% to a rate of 1.111 million units.

Though the report showed a rebound in building permits after three straight monthly declines, the gain was in the volatile multi-family home segment, which will do little to ease an acute housing shortage that is driving up prices.

The number of houses authorised for construction but not yet started last month was the third highest on record, indicating builders remained hesitant to undertake new projects.

The report followed on the heels of a survey from the National Association of Home Builders showing confidence among single-family homebuilders dropped to a 13-month low in August because of higher material costs and home prices, which are cooling demand for houses.

Housing starts also cooled in Canada. The stand alone monthly SAAR of housing starts for all areas in Canada was 272,176 units in July, a decrease of 3.2% from June. While the market has moderated in total starts from the highs recorded earlier this year, the level of activity remains elevated by historical standards.

Home sales gain in July

Home sales rose for the second straight month but were barely higher than in July 2020. Sales of existing homes in July rose 2% from June to a seasonally adjusted, annualized rate of 5.99 million units, according to the National Association of Realtors.

Sales were 1.5% higher than July 2020, continuing a trend of gains following a pullback in the spring. Sales are likely improving due to rising supply. The inventory of homes at the end of July stood at 1.32 million, down 12% from a year ago, but that is a smaller annual decline than in recent months. Despite the slight increase in supply, demand continued to outpace it, pushing prices to another all-time high.

Existing-home sales in the Northeast remained steady in July, registering an annual rate of 740,000 for the second straight month, a 12.1% rise from July 2020.

Existing-home sales in the Midwest rose 3.8% to an annual rate of 1,380,000 in July, a 1.4% decline from a year ago. Existing-home sales in the South rose 1.2% in July, recording an annual rate of 2,630,000, up 1.2% from the same time one year ago. Existing-home sales in the West grew 3.3%, posting an annual rate of 1,240,000 in July, equal to the level of a year ago.