WASHINGTON (Reuters) -U.S. single-family homebuilding and permits for future construction fell sharply in June as high mortgage rates and economic uncertainty hampered home purchases, suggesting residential investment contracted again in the second quarter.

Single-family housing starts, which account for the bulk of homebuilding, dropped 4.6% to a seasonally adjusted annual rate of 883,000 units last month, the Commerce Department's Census Bureau said on Friday. Permits for future single-family homebuilding decreased 3.7% to a rate of 866,000 units. 

Economists view President Donald Trump's sweeping import tariffs as posing an inflation risk. That has prompted the Federal Reserve to continue to pause its interest rate cuts. Consumer and producer inflation data for June suggested the import duties were starting to drive up prices for some goods.

Trade policy uncertainty and worries over the country's rising debt load have boosted U.S. Treasury yields, keeping mortgage rates elevated. The average rate on the popular 30-year fixed mortgage has hovered just under 7% this year, data from mortgage finance agency Freddie Mac showed.

Trump last week announced higher duties would come into effect on August 1 for imports from a range of countries, including Mexico, Japan, Canada and Brazil, and the European Union. Trump in April slapped a 10% duty on nearly all imports, while giving nations a 90-day period to negotiate trade deals. 

The slump in demand has increased the supply of homes on the market, discouraging builders from breaking ground on new housing projects. New housing inventory is at levels last seen in late 2007. A National Association of Home Builders survey on Thursday showed the share of builders cutting prices to attract buyers rose in July to the highest level since 2022.

Residential investment, which includes homebuilding, contracted in the first quarter. It is expected to have remained a drag on gross domestic product in the second quarter.