US housing starts fall as multifamily construction drops 22%

US housing starts fell unexpectedly in August as a sharp decline in multifamily construction outweighed a pickup in single-family building.

Starts decreased 2.6% to a 1.28 million annualized rate, according to government data released Thursday. Economists surveyed by Bloomberg had expected a 1.32 million pace.

Multifamily starts plunged almost 22%. Single-family construction rose 7.6% to an annualized 918,000, the fastest pace since March, supported by increases in the West and Midwest.

Housing completions dropped nearly 12% to the slowest rate since the end of 2018. Completions of single-family homes fell to their lowest level since before the pandemic.

The data underline the pressure facing residential real estate as mortgage rates rise and affordability remains constrained. Builders may also be reluctant to increase construction while inventories remain above pre-pandemic levels.

“Elevated and rising borrowing costs are holding developers back,” Bradley Saunders, North America economist at Capital Economics, said in a note. He said the decline in housing starts likely has further to run.

Overall building permits, a signal of future construction, fell 2.7% in August. Permits for single-family homes declined 1.8% to an annualized 878,000.

Home construction has reduced economic growth in five of the past six quarters. The Atlanta Federal Reserve’s GDPNow forecast estimates residential investment will subtract 0.16 percentage point from third-quarter growth.

The average 30-year mortgage rate approached 7% last week, the highest level in more than a year. Starts in the South fell 1.3% to a three-month low, while construction rose in the West. The government report estimated that the monthly change could range from a 14.6% decline to a 9.4% gain with 90% confidence.