Housing Construction Drops to Post-Pandemic Low

Construction is sliding to levels not seen in years as homebuilder sentiment shatters.

Housing starts decreased 9.8 percent in May from the previous month and 4.6 percent year-over-year to an annualized rate of 1.26 million homes, according to government figures released this week. That figure was well below estimates, Bloomberg reported.

Homebuilder activity is dragging as the sector faces a myriad of challenges. Mortgage rates remain elevated from a few years ago — last week, the 30-year rate hovered at 6.84 percent, according to the Mortgage Bankers Association — while the inventory of homes for sale has skyrocketed to its highest level in more than 15 years.

May marked the third consecutive month for housing completions to outpace housing starts, according to data from the Census Bureau. That suggests a further construction slowdown could be coming.

“With tariffs raising materials costs and immigration policy likely worsening labor shortages, the supply side of the equation is difficult and coupled with an environment where demand for new construction homes is weakening as the number of existing homes for sale grows,” Realtor.com chief economist Danielle Hale said in a statement to HousingWire.

The decline in starts varied in markets across the country. In the South, for instance, starts decreased by 10.5 percent in May, similar to the decline in the Midwest. In the West, however, housing starts actually jumped.

Multifamily starts also declined by nearly 30 percent, though that may be more of a return to the mean, as they were previously pacing at their strongest levels in two years.

The number of building permits, meanwhile, fell to an annualized rate of 1.39 million last month. That also represents a five-year low. Authorizations for single-family home builds decreased to the slowest pace in 25 months.

Homebuilder sentiment is at its lowest level since 2022, according to the National Association of Home Builders. That slide comes as the share of homebuilders lowering prices this month jumped to 37 percent, a three-year record, per the NAHB.

That’s putting homebuilder profits at risk as they also offer incentives to buyers, such as mortgage rate buydowns.

The NAHB projects a decline in one-family housing starts this year.

— Holden Walter-Warner