US single-family starts slip, residential investment to drag on GDP
U.S. single-family homebuilding declined for a third consecutive month in June, signalling that residential investment will continue to weigh on economic growth despite new federal legislation aimed at cutting construction costs.
U.S. single-family housing starts fell 0.2% in June to a seasonally adjusted annual rate of 895,000 units, marking the third straight monthly decline. Permits for future construction dropped 2.4% to 871,000 units, the lowest level since August 2025, according to the Commerce Department.
The persistent weakness in homebuilding is expected to act as a modest drag on U.S. GDP growth in the coming quarters. Builders are grappling with a combination of elevated mortgage rates sidelining buyers, a glut of unsold new homes, and rising costs for land and materials. Analysts see limited scope for a strong rebound in permits under these conditions.
Mortgage rates have surged as geopolitical tensions disrupt energy markets. The 30-year fixed-mortgage rate averaged 6.55% this week, an 11-month high, after rising nearly 60 basis points since late February. That increase followed the U.S. and Israel's attack on Iran and subsequent volatility in oil prices caused by a collapsed ceasefire.
A bipartisan housing affordability bill recently became law without President Donald Trump's signature, after he demanded passage of a separate voting bill. The legislation speeds up environmental reviews, eases rules on manufactured housing and encourages zoning reform.
However, markets should not expect an immediate boost from the regulatory changes. "The potential uplift to housing starts from streamlining environmental reviews, easing rules on manufactured housing and encouraging zoning reform will take time to filter through," said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.
The June decline in starts was broad-based, with drops in the Northeast, South and Midwest, while the West saw a slight increase. Compared to a year earlier, single-family homebuilding was down 3.2% in June, while permits slipped 0.2%.
The housing slowdown coincides with fragile consumer sentiment. A University of Michigan survey showed a brief boost in early July, though more than 70% of those interviews occurred before Middle East hostilities resumed. "Renewed uncertainty surrounding the U.S.-Iran conflict could keep energy prices volatile and weigh on household finances and perceptions of the economy, delaying a broader improvement in consumer sentiment," said Vivian Chen, financial markets economist at Nationwide.
