U.S. Housing Starts Plummet 15.4% in May, Reaching Slowest Pace Since 2019

U.S. housing starts experienced a significant downturn in May, falling 15.4% to an annual rate of 1.177 million units. This figure substantially lagged the market consensus of 1.430 million and represents the slowest pace of construction observed since 2019, excluding periods affected by COVID-19 shutdowns. On a year-over-year basis, overall starts are down 8.7%.

The decline in May was broad-based, affecting both single-family and multi-unit sectors. Single-family starts decreased 1.9% for the month, while multi-unit starts saw a precipitous 40.2% drop, marking one of the largest declines on record for this sector. Regionally, starts fell in the South, West, and Northeast, but showed an increase in the Midwest.

New building permits, an indicator of future construction, also saw a modest decline of 0.7% in May, reaching an annual rate of 1.413 million, slightly below the anticipated 1.418 million. While overall permits were down, single-family permits showed a slight increase of 0.6%, suggesting some underlying resilience in this segment. Notably, year-over-year, single-family permits are down 1.8%, while multi-unit permits have risen 2.5%.

Despite the sharp monthly contraction, particularly in the multi-unit sector, analysts suggest that a broader housing market crash is unlikely. Housing starts data are known for their volatility, and monthly fluctuations are common. While the pace of home completions also declined 8.1% in May to an annual rate of 1.313 million, this was predominantly concentrated in the multi-family sector. The extended period of under-construction since the 2007 housing bust, coupled with persistent affordability challenges and high mortgage rates, are expected to keep national average home prices elevated.

The sentiment among homebuilders remains challenged, with the National Association of Home Builders (NAHB) index declining to 35 in June from 37 in May. A reading below 50 indicates that more builders view conditions as poor rather than good, a trend that has persisted for 26 consecutive months. High home prices, restrictive local building regulations, labor shortages, and tariffs continue to be significant headwinds for the sector. In other economic news, import prices increased 1.9% in May, and export prices rose 1.3%.

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Key terms:

1. **Housing Starts**: An economic indicator that measures the number of new residential construction projects started during a specific period, providing insight into the health of the housing market.

2. **Building Permits**: An authorization issued by a local government agency that must be obtained before construction or renovation of a building can begin, serving as a leading indicator of future construction activity.

3. **Annual Rate**: A way of expressing a monthly or quarterly economic data point as if it were to continue for a full year, allowing for comparison with previous full-year data. Additionally, **Multi-unit Starts**: Refers to the initiation of construction for buildings with multiple separate housing units, such as apartment complexes or condominiums.