Homebuilding projects initiated in July in the US fell sharply and unexpectedly compared to June due to another steep drop in apartment construction, according to data released Friday.
The weakness was widespread across the country, with big drops everywhere except in the West, the Commerce Department said.
The second consecutive large decline was more bad news in this key sector of the US economy, which has faced constraints from a shortage of workers, higher costs for some materials, and rising house prices which have deterred would-be homebuyers.
New projects which started last month fell four percent from the prior month to an annual rate of 1.191 million homes, seasonally adjusted, well below what analysts had expected, according to the data.
One bright spot was a 8.4 percent jump in building permits, recovering from their lowest point in two years. This offered hope that supply will increase and relieve some of the pressure, especially for apartments.
With rising prices for single-family homes, demand has surged for rental apartments, but construction of multi-family units dropped 17.2 percent in July, and is down 4.7 percent from the same month of 2018.
However, permits issued for apartment projects surged nearly 25 percent, the Commerce Department reported.
Officials warn that the monthly data are subject to wide margins of error, and it can take six months before a trend can be established.
Ian Shepherdson of Pantheon Macroeconomics said he expects sales will climb in the second half of the year, which will spur new construction.
"Homebuilders have been cautious, but the drop in mortgage rates in recent weeks will boost sales and construction activity will follow," he said in a research note.