US housing construction softens in July, flux steady

Housing permits and starts both fell in July to four-year lows as persistently high borrowing costs continued to weigh on the housing market, and roofing flux prices remained unchanged.

Total housing starts fell by 6.8pc to a seasonally adjusted annual rate of 1.238mn in July from June's revised numbers, according to the US Census Bureau and the Department of Housing and Urban Development. This is down 16pc from July 2023, the month the Federal Reserve hiked its target lending rate to its current level, the highest in 23 years. It represents the lowest rate of housing starts since 1.053mn in May 2020, when the Covid-19 pandemic closed down much of the US economy.

Railed roofing flux prices remained unchanged in July even as production costs strengthened over June. WTI crude futures rose from $73.25/bl in early June to $83.88/bl on 3 July.

Gulf coast flux values were flat at $495/st in July from June as were midcontinent flux prices at $477.50/st.

Permits were issued at a rate of 1.396mn in July. This is down 4pc from June and 7pc down from July 2023. This was the lowest rate of permit issuance since June 2020.

High borrowing costs appear to have a more acutely negative impact on the housing market the longer they remain elevated. Starts and permits were both at their lowest rate since the middle of 2020 when Covid-19 paralyzed a large portion of the US housing market and the economy was just emerging from a brief, sharp recession.

Single-family starts extended their decline into a fifth month, down 14pc to a rate of 851,000 in July from the prior month and off by 15pc from July 2023. Starts on multifamily structures of five or more units climbed 12pc to 363,000 units started in July from the prior month but were down by 24pc from a year earlier

Single-family housing permits were issued at a rate of 938,000 units in June, down 0.1pc from June marking the sixth straight month of decreases. This was 1.6pc lower than July 2023. Multifamily permits fell by 12.4pc on the month.

The Federal Reserve is widely expected to start lowering borrowing costs at its policy meeting next month after holding its target rate at a 23-year high of 5.25-5.5pc since July of last year. Consumer inflation eased to an annual 2.9pc in July, the lowest in three years.

The labor market has also shown signs of weakening among other softer data, including recent slides in stock prices, that triggered recession concerns. This has all led futures markets to give near certain odds of rate cuts beginning next month. They will be too late to shore up the housing market this year, but a sustained pace of rate cuts into 2025 may boost construction and sales next year.

Construction industry expectations

Construction materials companies noted mixed outlooks in second quarter earnings calls as housing starts and permits reached four-year lows.

Owens Corning expects new construction to grow in the long-term as borrowing costs ease but sees near-term weakness. CRH expects new-build residential construction to remain weak on affordability constraints.

Martin Marietta noted stronger single-family housing markets in the Carolinas and Georgia and expects recent inflation and employment data to support lower interest rates.

By Aaron May and Cobin Eggers