New home construction rebounds in July, but future plans stall

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.