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Housing Starts Tumble in July as Building Costs, Home Prices Weigh on Sentiment

Falling lumber prices haven't yet filtered into home construction costs, with July housing starts falling 7% from June amid elevated new home prices.

The U.S. housing market may have hit a wall in July, Commerce Department data indicated Wednesday, as housing starts tumbled to a four-month low despite softer lumber prices improving employment prospects. 

July housing starts fell 7% from the previous month to an annualized rate of 1.534 million units, well shy of the Street consensus forecast of 1.6 million and June's pace of 1.65 million. Multi-family starts plunged 13.1%, the data indicated, while single-family home starts were down 4.5% to an annualized rate of 1.111 million. 

Permits for new construction were up 2.5%, however, to an annualized rate of 1.635 million as lumber prices fell to the lowest levels since July of last year and supply-chain disruptions eased. 

Curiously, the permits improvement contrasted sharply with data from the National Association of Home Builders, which noted Tuesday that homebuilder sentiment fell to a 13-month low as buyers faced "sticker shock" linked to higher constructions costs.

"The drop in starts was only marginally bigger than we expected; a clear correction was always likely after the unexpected jump in June," said Ian Shepherdson of Pantheon Macroeconomics. "The increase in permits is a surprise, but note that the entire increase is due to an 11.2% leap in the volatile multi-family component; Single-family permits fell by 1.7%, the fourth straight decline, following the downshift in new home sales.'

"Homebuilders are still catching-up. But the signal from the fall in sales is unambiguous; both permits and starts are likely to fall over the next few months," he added. "Housing demand has reverted to its pre-COVID level, so construction activity needs to drop further."

U.S. equity futures were little-changed following the data release, with contracts tied to the Dow Jones Industrial Average indicating a 70 point opening bell decline and those linked to the S&P 500 priced for a 7 bump to the downside.