New residential construction increased in July, with housing starts rising 5.2% to a five-month high, up to 1.428 million units on a seasonally adjusted annual basis from 1.358 million in June. This is 12.9% higher than the July 2024 rate of 1.265 million units, according to U.S. Census Bureau data released Tuesday.

While single-family housing starts saw a modest 2.8% monthly gain, multifamily starts for properties with five or more units surged 11.6%.

Residential permits, however, dipped 2.8% to 1.354 million, from revised June numbers which had slipped to 1.393 million.

The increase in residential starts defied many economists’ expectations. Economists polled by Reuters had estimated July’s housing starts at 1.29 million. The permits estimate had been slightly higher, at 1.386 million.

According to First American’s Deputy Chief Economist Odeta Kushi, the monthly increase in housing starts is a welcome development, but “sustained gains are needed to demonstrate continued progress in single-family homebuilding.”

“The housing market remains structurally undersupplied, and we need more hammers at work to build the homes that are still in short supply,” Kushi stated.

Kushi also cautioned that builder sentiment receded further in August, marking the 16th consecutive month in negative territory, according to a survey by the National Association of Home Builders and Wells Fargo. To help stimulate demand, builders have increasingly turned to sales incentives, with 66% of builders reporting they used incentives in August — up from 62% in July and the highest share recorded in the post-COVID period.

“Builders continue to face persistent supply-side challenges and intensifying competition from a growing inventory of resale homes,” Kushi observed. “Without meaningful improvements in affordability, the outlook for the single-family sector remains constrained.”