US housing starts fell unexpectedly in July, reaching an annualized rate of 1.239 million units, a 12.4% decrease from the revised June figure of 1.415 million. This decline was significantly worse than anticipated, missing the consensus estimate of 1.35 million. Both single-family and multifamily construction segments contributed to the slowdown, with single-family starts dropping 9.9% monthly to 808,000 units and multifamily starts falling to 421,000 units.
The decline reflects the ongoing impact of elevated mortgage rates, which are near 6.8%, and persistent affordability challenges, pricing many potential buyers out of the market. This marks the second consecutive month that housing starts have missed consensus estimates, further exacerbating the existing housing shortage in the US. The market response was negative, with the Homebuilder ETF ITB dropping 1.1% and major homebuilders like D.R. Horton (DHI) and Lennar (LEN) seeing 1-2% declines in their stock prices and cutting 2026 guidance.
Despite the decline in starts, building permits, a forward-looking indicator, showed a modest increase. Total permits rose 5% in July to an annual rate of 1.443 million, and were up 3.1% year-over-year. Single-family authorizations increased by 1.1% year-over-year to 894,000 units, while multifamily permits rose 9.4% to 490,000 units. Analysts like Odeta Kushi, Deputy Chief Economist at First American, noted this as a "silver lining" suggesting builders are preparing for future demand, although cautiousness remains due to high new home inventory and slow sales.
