Housing starts tumble in July to new 17-month low

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Fed tightening spurred ‘the great housing recession’: Expert

Former Fannie Mae executive Tim Rood provides an overview of the housing market after August homebuilder sentiment plunged on ‘Cavuto: Coast to Coast.’

New U.S. home construction plunged in July for the third consecutive month, evidence that rising interest rates are starting to cool the red-hot housing market.

Housing starts dropped 9.6% last month to an annual rate of 1.446 million units, the lowest level since February 2021, according to new Commerce Department data released on Tuesday. That's below Refinitiv economists' forecast for a pace of 1.540 million units.

Applications to build – which measures future construction – slowed to an annual rate of 1.67 million units, which is also the lowest since September.

The data comes one day after National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, fell for the eighth consecutive month to 49, marking the worst stretch for the housing market since the 2008 financial crisis.

Houses under construction at the Norton Commons subdivision in Louisville, Kentucky, US, on Friday, July 1, 2022.  (Photographer: Luke Sharrett/Bloomberg via Getty Images / Getty Images)

Any reading above 50 is considered positive; the gauge has not entered negative territory since a brief – but steep – drop in May 2020. 

The index has fallen considerably from just one year ago, when it stood at 80. It peaked at a 35-year high of 90 in November 2020, buoyed by record-low interest rates at the same time that American homebuyers – flush with cash and eager for more space during the pandemic – started flocking to the suburbs.

"Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession," NAHB chief economist Robert Dietz said.

The interest rate-sensitive housing market has started to cool noticeably in recent months as the Federal Reserve moves to tighten policy at the fastest pace in three decades. Policymakers already approved a 75-basis point rate increase in both June and July.  

A home sits for sale in Geneva, Illinois, June 23, 2009.  (REUTERS/Jeff Haynes  / Reuters Photos)

The average rate for a 30-year fixed rate mortgage climbed to 5.22% for the week ending Aug. 11, according to recent data from mortgage lender Freddie Mac. That is significantly higher than just one year ago when rates stood at 2.86%.

This is a developing story. Please check back for updates.

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