New home construction falls 7 percent in July

New home construction fell 7 percent in July as builders tackled massive backlogs over newer contracts, according to data released Wednesday by the Commerce Department.

Housing starts for privately owned homes hit a seasonally adjusted annualized rate of 1.53 million in July, falling below the revised June rate of 1.65 million while remaining 2.5 percent above the same month last year. Single-family housing starts were down 4.5 percent, and starts on homes with five or more units plunged 13.6 percent.

Home sales and construction have fallen steadily throughout the summer after surging lumber prices earlier in the year drastically increased the cost of building homes. While lumber prices have fallen closer to historic levels, home prices have continued to break record highs as builders fight through other supply issues and backlogs.

“Builders continue to face significant material, labor and land shortages. We expect residential investment to remain soft in the third quarter,” wrote Yelena Maleyev, an economist at Grant Thornton.

“Home prices are still rising in many markets as builders and sellers slowly add supply,” she continued. “Bidding wars and record prices are a byproduct of the lack of supply. Speculators have entered the bidding wars and are crowding out first-time buyers.”

The severe lack of housing and double-digit annual increase in prices has driven a wedge between households wealthy enough to own homes and those struggling to buy for the first time.

Buyers able to afford drastically more expensive homes have seen their wealth grow amid the price boom. But those unable to keep up with rising prices have been left behind, threatening to deepen income inequality.

Both Democrats and Republicans have raised alarms about the lack of affordable homes, and President Biden has prioritized expanding the housing supply through the $3.5 trillion Democratic infrastructure and social support plan. GOP lawmakers have balked at spending billions of dollars on new construction, but have supported other tax incentives and zoning reforms that could receive Democratic support.

“Builders will remain busy into 2022 as they work their way through backlogs while supply chain issues finally ease in the second half of the year. More supply will come on line but at the higher end. First-time buyers will remain sidelined as high home prices persist,” Maleyev wrote.