U.S. housing starts decline to lowest level since early 2021

New U.S. home construction fell in July by more than forecast to the slowest pace since early last year as builders adjusted to a pullback in demand and a pickup in inventory.

Residential starts dropped 9.6% last month to a 1.45 million annualized rate from a revised 1.6 million pace in June, according to government data released Tuesday. The median forecast called for a 1.53 million pace.

Applications to build, a proxy for future construction, declined 1.3% to 1.67 million.

Starts of single-family homes were the weakest in more than two years, the report showed. After a pandemic-related housing boom forced builders to scramble to build enough homes to satisfy demand, high mortgage rates, elevated inflation and a deteriorating economic picture are now tempering sales. That's left builders with a sizable number of unsold properties. 

The outlook continues to deteriorate. A report Monday showed homebuilder sentiment slid for an eighth-straight month in August, marking the worst stretch since 2007.

While Home Depot Inc. on Wednesday reported better-than-expected second-quarter earnings, the home-improvement retailer also said that customer transactions continued to fall. Home Depot said transactions dropped 3% from a year ago.

Prices for commodities like lumber have eased in recent months, though builders continue to struggle to fill open positions, especially more skilled roles. Two-thirds of construction firms reported few or no qualified applicants in a July survey of small businesses. 

The government's report showed single-family housing starts decreased 10.1% to an annualized 916,000 rate, the slowest since June 2020. Permits for one-family dwellings dropped 4.3% to a two-year low. Meanwhile, construction of multifamily dwellings fell to 530,000 in July.

Existing-home sales for July will be released Thursday, followed by new-home purchase data next week.