U.S. home building unexpectedly fell in July as the construction of single- and multi-family homes declined, which could temper expectations of a rebound in housing market activity in the third quarter.
Housing starts declined 4.8 percent to a seasonally adjusted annual rate of 1.16 million units, the Commerce Department said on Wednesday. June's sales pace was revised down to 1.21 million units from the previously reported 1.22 million units.
The report also showed a decline in building permits, suggesting that residential construction could struggle to regain momentum after contracting in the second quarter at its steepest pace since the third quarter of 2010.
Economists polled by Reuters had forecast groundbreaking activity to be little changed at a rate of 1.22 million units in July. Homebuilding fell 5.6 percent on a year-on-year basis.
Single-family home building, which accounts for the largest share of the housing market, slipped 0.5 percent to a rate of 856,000 units last month.
Despite strong demand for housing, groundbreaking on single-family housing projects has slowed since racing to near a 9-1/2-year high in February. Homebuilders continue to complain they cannot find skilled labor, especially framers, and that buildable lots remain in short supply.
Builders also say the costs of their materials are rising. Prices for building materials were increasing even before the U.S. government slapped anti-subsidy duties on imports of Canadian softwood lumber in April.
A survey on Tuesday showed confidence among homebuilders increased in August amid rising demand for new houses.
Last month, starts for the volatile multi-family housing segment tumbled 15.3 percent to a rate of 299,000 units. Groundbreaking for buildings with five units or more fell to its lowest level since September 2016.
Multifamily home building is slowing as apartments come on the market, leading to an increase in the rental vacancy rate this year.
Building permits last month fell 4.1 percent to a rate of 1.22 million units. Single-family home permits were unchanged, while permits for the construction of multi-family homes plunged 11.2 percent in July.