[Fox Business] Housing starts rise more than expected in July despite high mortgage rates

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New U.S. home construction ticked higher in June after declining the previous month, even as the housing market continues to confront headwinds like higher mortgage rates.

Housing starts rose 3.9% last month to an annual rate of 1.45 million units, according to new Commerce Department data released Wednesday. That is slightly above Refinitiv economists’ forecast for a pace of 1.44 million units.

Applications to build – which measures future construction – also inched higher, climbing 0.1% over the course of the month to an annualized rate of 1.44 million units. Compared with the same time last year, building permits are down about 13%. 

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The data comes one day after the National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, unexpectedly plunged six points to 50, a three-month low. Any reading below 50 is negative. 

Prior to this month, sentiment among builders had been steadily rising as a worsening inventory shortage – driven by sellers reluctant to give up their low mortgage rates locked in before the pandemic – pushed would-be buyers to seek out new construction instead. 

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However, the latest data suggests a recent spike in mortgage rates is weighing on that demand.

“Rising mortgage rates and high construction costs stemming from a dearth of construction workers, a lack of buildable lots and ongoing shortages of distribution transformers put a chill on builder sentiment in August,” said Alicia Huey, NAHB chair and a custom home builder and developer from Birmingham, Alabama.

The Federal Reserve’s aggressive interest-rate hike campaign sent mortgage rates soaring above 7% last year, quickly cooling the once red-hot housing market. However, rates have been slow to retreat from the nearly two-decade high, forcing many potential buyers out of the market. 

Rates on the popular 30-year fixed mortgage are currently hovering around 6.96%, according to Freddie Mac, well above the 5.51% rate recorded one year ago and the pre-pandemic average of 3.9%. That is the highest level since November 2022.

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