U.S. housing starts plunge

What happened: U.S. housing starts, a key indicator of residential construction activity, plummeted by 12.4% in July, according to the Commerce Department. This was a significant drop from the previous month's spike and much worse than the expected 5.9% decline. The annual rate of housing starts fell to 1.239 million, nearing COVID-19 lows.

Market impact: This sharp decline in housing starts signals a slowdown in residential construction, affecting homebuilders like D.R. Horton, Lennar, and PulteGroup. It also impacts material suppliers such as Home Depot and Lowe's. The decline may be attributed to rising construction costs, labor shortages, and increased mortgage rates, which make housing less affordable.

What to watch next: Investors should closely monitor the upcoming release of the National Association of Home Builders/Wells Fargo Housing Market Index on August 18, which will provide insights into homebuilder sentiment. Additionally, the August housing starts data on September 20 will indicate if the July decline was an aberration or the start of a trend.