High interest rates for construction and development loans as well as ongoing challenges regarding labor shortages and higher prices for many building materials continued to slow the building market this summer.

Overall housing starts decreased 6.8% in July to a seasonally adjusted annual rate of 1.24 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This is the lowest pace since May 2020.

The July reading of 1.24 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts decreased 14.1% from an upwardly revised June figure to an 851,000 seasonally adjusted annual rate. However, on a year-to-date basis, single-family starts are up 11.4%. The multifamily sector, which includes apartment buildings and condos, increased 14.5% to an annualized 387,000 pace.

“The decline in new home construction mirrors our latest builder surveys, which show that buyers remain concerned about challenging affordability conditions and builders are grappling with elevated rates for builder loans, a shortage of workers and lots, and supply chain concerns for some building materials,” said Carl Harris, chairman of the National Association of Home Builders (NAHB) and custom home builder from Wichita, Kansas.

“Better inflation data points to the Federal Reserve moving to cut interest rates possibly as early as September, and with interest rates expected to moderate in the months ahead, this will help both buyers and builders who are dealing with tight lending conditions,” said NAHB Chief Economist Robert Dietz.

On a regional and year-to-date basis, combined single-family and multifamily starts are 1.3% lower in the Northeast, 5.1% lower in the Midwest, 5.4% lower in the South and 5.1% lower in the West.

Overall permits decreased 4.0% to a 1.40 million unit annualized rate in July. Single-family permits decreased 0.1% to a 938,000 unit rate. Multifamily permits decreased 11.1% to an annualized 458,000 pace.

Looking at regional data on a year-to-date basis, permits are 1.1% higher in the Northeast, 3.2% higher in the Midwest, 0.3% lower in the South and 4.1% lower in the West.

Single-family homes under construction fell back to a count of 653,000—down 4.1% compared to a year ago. The number of multifamily units under construction fell to an 886,000 count—down 13.2% compared to a year ago. The number of multifamily units under construction is now the lowest since July 2022.