Home-construction starts fall to lowest level since April 2021

U.S. residential housing starts fell in May to a seasonally adjusted annual rate of 1.55 million units, down 14.4% month over month and 3.5% year over year to the lowest level in more than a year.

That’s according to the most recent residential construction report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, which also revealed a pace of 1.05 million single-family housing starts in May — a monthly backtrack of 9.2%. Single-family starts have now fallen for three straight months and are now down 5.3% on a yearly basis, although they are still up 3.2% year to date.

Multifamily starts, which are typically more volatile month to month than single-family construction, plunged 23.7% in May, wiping out most of the 24.4% increase seen in April. Multifamily starts were at an annualized rate of 498,000 units, the slowest pace since November 2021.

“Single-family homebuilding is slowing as the impacts of higher interest rates reduce housing affordability,” said Jerry Konter, chairman of the National Association of Home Builders. “Moreover, construction costs continue to rise, with residential construction materials up 19% from a year ago. As the market weakens due to cyclical factors, the long-term housing deficit will persist and continue to frustrate prospective renters and homebuyers.”

“The new-home market is particularly sensitive to rising rates and builders want to ensure that if they build it, someone will buy it,” said Odeta Kushi, deputy chief economist at First American Financial Corp. “Builders are responding to the decline in affordability and cooling demand by building less, but a slowdown in construction is concerning because the U.S. continues to face a housing shortage. We need more homes, not less.”

Those looking for silver linings in the new-construction report can point to substantial upward revisions to April numbers, which helped cushion some of the weak May data. Initially reported as an 0.2% monthly decrease, April’s housing starts were adjusted to a 5.5% increase. And due to the ramp-up in building activity over the past few quarters, housing completions are rising. Total completions were up 9.1% from April and 9.3% from May 2021, with single-family completions up 2.8% monthly.

“The growth in completions means more homes on the market in the short term, offering some immediate relief in alleviating chronic housing-supply shortages,” Kushi said.

Meanwhile, the large backlog of homes under construction but unfinished continues to grow. The total number of units under construction in May grew to 1.665 million, the largest number on record since 1970. Homes under construction continue to be slowed by ongoing supply chain issues for both input materials and labor, delaying projects and frustrating builders.

The increase in completions implies some easing in these shortages. Federal Reserve Chair Jerome Powell alluded in a recent statement to the “tremendous amount of supply in the housing market of unfinished homes” as further potential relief for new-home inventory moving forward.

Still, building appears set to slow further in the months ahead. Permits fell for the second straight month, dropping 7% between April and May to a seasonally adjusted annual pace of 1.695 million units. Single-family permits decreased 5.5% while multifamily permits retreated by 9.4%.


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