By Rajwa Quasim
The U.S. housing market faced a sharp drawback in July due to high mortgage rates and economic uncertainty as factory production continued to grow largely due to artificial intelligence expansion.
Single family house construction, which was the biggest taker of home building, fell 9.9% in July compared to the month of June. According to the data from the Commerce Department’s Census Bureau, it fell to a seasonally adjusted annual rate of 808,000 units. This was the slowest pace since 2022 and 15.7% lower than a year earlier. Adding the apartments and other buildings, the percentage of decline goes up to 12.4% to a yearly rate of 1.2 million, below economists’ prediction of 1.35 million.
The slowdown comes as the mortgage price remains high. Though the interest rate for a 30-year fixed rate mortgage in the U.S. fell slightly during the end of first week in August, the rate of 6.77% is still quite high compared with recent months and remains near the highest in more than a year.
“Until mortgage rates decline and allow builders to unload currently completed homes or those under construction, we expect home builders to remain hesitant to make significant investments in new projects,” said Nationwide Senior Economist Ben Ayers.
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Building permits for a future single-family home rose 2.5% in July to an annual rate of 894,000. It is slightly higher than last (increased by 1.1%), but the overall number of permits being issued is still close to the lowest level seen in three years.
NAR Chief Economist Lawrence Yun said, “The highest mortgage rates of the year hit right in the middle of summer, and that’s pulling back contract signings. Home prices are at record highs so houses for sale are sitting on the market longer, and fewer buyers are bidding above the asking price than a year ago, though there are large local market variations.”
Like single-family home construction, contracts to buy existing homes fell 2.3% in July, reaching their lowest level since January. In contrast, the country’s manufacturing output increased 0.2% in July after an upwardly revised 0.3% increase in June. The index reached its highest level since April 2022, driven by strong production of high-tech and industrial equipment.
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Semiconductor production jumped 2.4% amid continued demand linked to the rapid expansion of artificial intelligence infrastructure. U.S. economist at Oxford Economics Bernard Yaros said, “The usual suspects, including AI-linked industries, drove industrial production, and particularly durable goods manufacturing, higher. AI is increasingly spilling over into other investment goods beyond information processing equipment.”
Defense production rose 1.8% amid increased military spending. Meanwhile, motor vehicle production weakened. The figures show that manufacturing growth remains uneven across sectors, with some areas benefiting from the rapid expansion of artificial intelligence and increased defense spending amid changing global conditions.