US housing market stumbles in July as AI boom drives factory growth

# U.S. Housing Market Slumps as High Mortgage Rates Weigh on Builders While AI Fuels Factory Growth

The U.S. housing market took a significant hit in July as elevated mortgage rates, expensive home prices and economic uncertainty continued to discourage buyers and builders. At the same time, the country’s manufacturing sector moved in the opposite direction, with growing demand for artificial intelligence infrastructure helping drive factory production higher.

Single-family housing starts, the largest part of residential construction, dropped 9.9% in July from the previous month to a seasonally adjusted annual rate of 808,000 units, according to data from the Commerce Department’s Census Bureau. It marked the slowest pace since 2022 and represented a 15.7% decline from the same period a year earlier. When apartments and other residential structures are included, total housing starts fell 12.4% to an annual rate of 1.2 million units, well below economists’ expectations of 1.35 million.

High borrowing costs remain one of the biggest challenges facing the housing sector. Although the average rate on a 30-year fixed mortgage eased slightly in early August, it remained around 6.77%, keeping financing costs elevated for potential buyers. Economists say builders are also becoming cautious as completed homes and properties under construction take longer to sell.

The weakness is also visible in the broader housing market. Contracts to purchase existing homes declined 2.3% in July, reaching their lowest level since January. Meanwhile, home prices remain near record highs, forcing buyers to take longer to make purchasing decisions and reducing competition in many markets.

There was a brighter signal in building permits, with permits for future single-family homes rising 2.5% in July to an annual rate of 894,000. However, overall permit activity remains close to its lowest level in roughly three years, suggesting that builders are still taking a cautious approach to new projects.

While housing struggled, U.S. manufacturing recorded modest growth. Factory production increased 0.2% in July following a revised 0.3% rise in June, pushing manufacturing activity to its highest level since April 2022.

Artificial intelligence emerged as one of the key drivers behind the industrial gains. Semiconductor production jumped 2.4% as demand continued to grow for chips and equipment supporting the rapid expansion of AI infrastructure. Economists said the AI boom is increasingly creating demand beyond traditional computing equipment and spreading into other areas of industrial investment.

Defense manufacturing also contributed to the growth, with production rising 1.8% amid increased military spending. However, motor vehicle production weakened, highlighting the uneven nature of the manufacturing recovery.

The latest figures paint a divided picture of the U.S. economy: high interest rates and expensive homes are putting pressure on residential construction, while AI investment and defense spending are providing fresh momentum for parts of the manufacturing sector. The direction of mortgage rates in the coming months could determine whether the housing market begins to recover or faces another period of weakness.