US New Home Construction Drops to Lowest in 17 Months

On Tuesday, the U.S. Commerce Deparment informed that new home construction hit a 17-month low in July, as the economy slows down amid the Federal Reserve's monetary tightening to curb surging inflation.

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The once-booming housing sector has begun to cool down. Housing starts plummeted 9.6 percent to an annual 1.446 million units. That's the lowest since February 2021.

"It's certainly a much stronger decline than what was expected. That's reflecting higher mortgage rates, elevated inflation, and concerns about the outlook. All those headwinds are clearly pressuring the housing market," said Sam Bullard, senior economist at Wells Fargo

Noting that builders have more inventory on their hands, which will lead to lower, more affordable home prices going forward, Bullard, however, said that "on balance, conditions are still looking rather sour for the U.S. housing market, at least for the foreseeable future."

Home builder confidence has declined for eight months in a row - the worst stretch since 2007, when the housing market took a nosedive. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index dropped 6 points to 49 in August. That's under its "break even" point of 50, which occurred for the first time in over two years.

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

Recent months have seen a substantial slowdown in the previously-booming housing market, as rising interest rates and high prices have made it impossible for many Americans to purchase homes. The FED is raising rates at the fastest clip in decades, in a bid to battle surging inflation - the worst in 40 years -- and that is impacting the housing sector.