New residential construction continued its downward trend in May, according to a report released Wednesday by the U.S. Census Bureau and Department of Housing and Urban Development.
Particularly striking was a nearly 10% month-over-month fall for housing starts to a seasonally adjusted annualized rate of 1.26 million units. Last month’s housing starts are down 4.6% compared to May 2024’s rate of approximately 1.32 million units.
Multifamily housing starts for units in buildings with five or more units clocked in at 316,000 in May, a sharp 30.4% decline from April.
Building permits hit a five-year low, falling in May to a seasonally adjusted annual rate of 1.39 million — 2% below April’s numbers and down 1% since May 2024.
Odeta Kushi, deputy chief economist at First American, said in a statement provided to Scotsman Guide that while the numbers fell short of consensus expectations, the steep drop is not entirely surprising considering that builder sentiment in June reached one of its lowest levels in 13 years. She attributed the month-over-month pullback to a decline in multifamily groundbreaking, while the decline in single-family building permits points to a weaker trend moving forward.
“Single-family home starts were essentially flat in May compared with April, but down 7.3% compared to last year,” Kushi said.
The dampened outlook may reflect a high level of existing inventories. Kushi said the weak construction data contrasts sharply with strong new-home sales in April, which made up the highest share of total sales since 2005.
“Consider that new-home sales might offer a better deal for buyers than existing homes,” she stated. “Historically, new homes are priced at a premium relative to existing homes, but that gap has flipped. In April, the median price of a new home ($407,200) was actually lower than the median price of an existing home ($414,000), partly due to price cuts and builders constructing smaller, less expensive homes.”
Other possible reasons for the decline are how builders are facing higher financing costs, tariff uncertainty, softer demand from elevated rates, increased competition from rising existing-home inventory in key markets like Texas and Florida, and higher inventories of their own, according to Kushi. “This mix is weighing on builder sentiment and likely to slow single-family construction,” she noted.
