Homebuilding fell to the lowest level in nearly 1-1/2 years in July, weighed down by higher mortgage rates and prices for construction materials, suggesting the housing market could contract further in the third quarter.

Housing starts plunged 9.6% to a seasonally adjusted annual rate of 1.446 million units last month, the lowest level since February 2021. Single-family housing starts, which account for the biggest share of homebuilding, dropped 10.1% to a rate of 916,000 units, the lowest level since June 2020. Single-family homebuilding decreased in the Midwest and the South but rose in the West and Northeast.

The National Association of Home Builders/Wells Fargo Housing Market sentiment index fell for an eighth straight month in August, dropping below the break-even level of 50 for the first time since May 2020. Rising construction costs and mortgage rates were largely blamed.

Canadian housing starts surprisingly rose in July compared with the previous month. The seasonally adjusted annualized rate of housing starts rose 1.1% to 275,329 units from a revised 272,381 units in June, according to the Canadian Mortgage and Housing Corporation (CMHC). Analysts had forecasts starts would dip to 262,100.