New home construction rebounds in July but future plans stall

U.S. homebuilders started construction on new homes at the quickest pace in five months in July, though permits for future projects were the weakest since 2020.Why it matters: The rise in activity might not ease fears that the housing recession, underway for years, could get worse in the months ahead. By the numbers: New construction was stronger than expected last month, despite downbeat sentiment among homebuilders. New residential construction rose more than 5% in July to an annualized rate of 1.4 million homes, the government said on Tuesday.Multifamily housing starts led the gain, with a 10% gain in one month alone. Single-family homes, which make up the lion's share of construction, rose roughly 2%.Yes, but: Construction firms signaled weak plans for building in the future.Building permits, a leading indicator of future construction activity, fell almost 3% in July to an annualized rate of 1.35 million. That is roughly 6% below the pace seen in the same period a year ago.What to watch: The housing sector has slumped in recent years as high interest rates keep buyers on the sidelines. That has made builders more cautious about breaking ground on new projects that might not attract buyers. It has also hurt sales in the existing home market.Now there are two other factors weighing on housing: rising materials costs due to tariffs, and a crackdown on immigration that is shrinking the sector's labor pool.The bottom line: The housing sector is expected to continue to weigh on broader economic growth."Housing has been in recession since the Fed started raising rates in 2022 and we have not yet seen any green shoots," Jeffrey Roach, LPL Financial chief economist, wrote in a note."We expect residential investment will drag on GDP growth but that should reverse in Q1 2026," Roach added.

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