U.S. homebuilding fell 4% in July

The pace of U.S. home construction fell a sharp 4% in July despite strong demand from would-be buyers, held back by a shortage of skilled labor and affordable land. The construction slowdown, which has persisted all year, is thwarting prospective homebuyers.

The situation

Robert Frick, corporate economist at the Navy Federal Credit Union, said July’s report showed that low mortgage rates were not enough to pull the U.S. homebuilding market out of its slump. The average rate on a 30-year fixed mortgage is just 3.6 percent, according to Freddie Mac, its lowest level since November 2016.

Why it’s happening

The solid job market and falling mortgage rates have boosted interest among people seeking homes, yet the shortage of available homes and rising prices have dampened sales. The slowdown in construction, which in turn contributes to the scarcity of available housing, may contribute to a weakening of the overall economy.

“A dearth of cheap lots and persistent labor shortages are constraining builders, especially for homes costing less than $300,000, which have the greatest demand,” Frick said.

What’s next

Some economists found cause for optimism in the report. Matthew Pointon, a property economist at Capital Economics, noted that last month’s increase in construction of single-family homes was a sign of some improvement.

“Single-family starts are showing a slow recovery,” he said.

STEVE HELBER / AP Homebuilders are running into shortages of affordable land and skilled labor that together have contributed to a drop in housing construction despite a wealth of potential buyers.