U.S. housing starts up slightly in July in face of high costs

U.S. housing starts ticked up just 0.9% in July, a sign that higher construction costs might be weighing on homebuilders.

The Commerce Department said Thursday that housing starts last month rose to a seasonally adjusted annual rate of 1.17 million, not nearly enough to reverse the steep 12.9% plunge seen in June as rising lumber, land and labour costs appeared to constrain new construction. Lumber prices have shot up by about $7,000 per home since the start of 2017, largely due to tariffs on Canadian softwood lumber by the Trump administration, according to the National Association of Homebuilders.

“It looks like U.S. homebuilders are finding it increasingly difficult to get into the groove,” said Jennifer Lee, a senior economist at BMO Capital Markets.

Still, housing starts have risen 6.2% year-to-date. Solid job growth and a dearth of existing homes for sales have increased demand for new properties.

Read: Housing starts decline in July after busy June: CMHC

Prices are also a factor for would-be buyers, who are facing higher mortgage rates this year. The average interest on a 30-year, fixed-rate mortgage was 4.59% last week, up from 3.90% a year ago, according to the mortgage company Freddie Mac.

Ground breaking fell last month in the two priciest regional markets: the West and Northeast. But starts increased in the more affordable markets of the Midwest and South.

These regional differences caused Stephen Stanley, chief economist at Amherst Pierpont Securities, to suggest that weather might be a source of the slowdown. The West is coping with wildfires and heat waves, while the Northeast dealt with severe rainfalls, he said.

Building permits, an indicator of future construction, rose 1.5% in July.

Andrew Grantham, senior economist at CIBC, said in a research note Thursday that while the rise in permit applications could mean more new building going forward, residential construction won’t add much to third-quarter GDP “or could even be a slight drag.”

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Staff, with files from The Associated Press

The Associated Press is an American not-for-profit news agency headquartered in New York City.