U.S. single-family home building fell for a second straight month in August as builders continued to struggle with shortages of materials and labour, suggesting the housing market could remain a drag on economic growth in the third quarter.

The report from the Commerce Department on Tuesday also showed the number of houses authorized for construction but not yet started raced to a record high last month, a sign of reluctance by builders to take on new projects.

Builders’ inability to ramp up the production of single-family homes amid a massive housing shortage is driving up prices and keeping some first-time buyers from the market.

“While lumber prices have plummeted in the spot market, those lower prices have not yet made their way to home builders,” said Mark Vitner, a senior economist at Wells Fargo in Charlotte, N.C. “Moreover, other essential building materials remain in short supply, including windows, cabinets, electric breaker boxes and wedge anchors.”

Single-family starts, which account for the largest share of the housing market, dropped 2.8 per cent to a seasonally adjusted annual rate of 1.076 million units last month. The decline was, however, offset by a surge in starts for the volatile multifamily segment.

As a result, overall housing starts advanced 3.9 per cent to a rate of 1.615 million units in August. Data for July were revised up to a rate of 1.554 million units from the previously reported 1.534 million units. Economists polled by Reuters had forecast starts would rebound to a rate of 1.555 million units. Housing starts jumped 17.4 per cent compared to August, 2020.

Single-family starts dropped in the West and Midwest. They rose in the Northeast and the densely populated South.

Keep reading in The Globe and Mail