U.S. Housing Starts Plunge 8.5% Amid High Inventory

In August, the number of new housing starts in the United States fell to its lowest level since May, as high inventory levels dampened builders' willingness to commence new projects. The government reported that the annualized rate of new residential construction decreased by 8.5% to 1.31 million units, falling short of economists' expectations of 1.37 million units.

Single-family home starts, which account for the majority of the housing market, declined by 7% to an annualized rate of 890,000 units, marking the lowest level in over a year. Multi-family housing starts, which have been a significant driver of overall construction activity in recent months, also saw a decline of nearly 12%, reaching a three-month low.

The slowdown in new housing construction can be attributed to an oversupply of homes for sale, which has not been seen since the mid-2000s. While recent reductions in borrowing costs may provide some support to potential homebuyers, economists anticipate that the excess supply of homes will continue to hinder new construction activity in the coming months.

Economists predict that the Federal Reserve will lower interest rates multiple times this year, with the first rate cut expected later this week. Additionally, data released this week showed that mortgage rates fell to their lowest level in nearly a year, driving a surge in refinancing activity.

Prior to the release of this data, the Atlanta Federal Reserve's GDPNow model forecasted that residential investment would have a slight drag on U.S. GDP growth in the third quarter. As a leading indicator of future construction activity, building permits in August decreased by 3.7% to an annualized rate of 1.30 million units, the lowest level in over five years. Single-family home permits reached their lowest level since March 2023.