May Home Construction Down 14%, Market Isn’t Improving

• US housing starts slid 14% to an annual rate of 1.55 million units in May, the Census Bureau said.
• That’s below the average forecast of 1.7 million units and marked the slowest pace since April 2021.
• The slowdown signals housing supply will remain strained, leaving buyers under historic pressure.

Homebuilders are slowing their roll — and that means it’ll be even harder for Americans to find affordable homes. 

US housing starts plummeted in May to a seasonally adjusted annual rate of 1.55 million units, the Commerce Department announced Thursday morning. Economists surveyed by Bloomberg expected starts to dip slightly to a pace of 1.7 million units. Falling for the second consecutive month, the decline is attributed to rising inflation and surging mortgage rates that dampened consumer sentiment. Starts are now running at the slowest pace since April 2021.

During May, single family construction fell 9.2% from the previous month to the lowest reading since August 2020. The category saw annual construction slow to an annual pace of just over 1 million, but still short of the revised April figure. 

Multifamily construction — units in buildings with five households or more —  fell by 26.8%, marking the largest one-month decline since August 2020. That slowdown risks constraining rental supply and keeping rent inflation elevated. 

“Single-family home building is slowing as the impacts of higher interest rates reduce housing affordability,” Jerry Konter, chairman of the National Association of Home Builders, told Insider. “As the market weakens due to cyclical factors, the long-term housing deficit will persist and continue to frustrate prospective renters and home buyers.”

Building permits — regarded as a forward indicator for home construction — also slowed, reaching an annual rate of 1.70 million in May. That was down 7% from the revised April rate of 1.82 million and below the median forecast of 1.79 million permits.

“Home builders pulled back from getting permits and starting construction in May. That’s not a hopeful sign for a country suffering from a housing shortage,” Holden Lewis, Mortgage Expert at NerdWallet, told Insider. “The number of dwellings under construction is at its highest level since the 1970s, partly because builders don’t get their hands on materials to complete homes.”

The Thursday report offers little solace for Americans hoping for the housing market to cool off. Overwhelming demand and historically low supply drove prices sharply higher throughout the pandemic. The nationwide backlog of prospective buyers continued to swell as more waited for a better time to buy. The May slowdown in construction signals contractors are still hesitant to meet demand and possibly slowing their roll to protect future profits.

As housing construction fell in May, the median listing price of a home climbed 14.8% to $430,621, according to Redfin. In the rental market, rents reached a record high of $2,002, rising 15% from the same time period in 2021. May’s readings are a reminder  that whether you are a renter or buyer, housing affordability is still cause for concern. 

“More people are opting to live alone, and rising mortgage-interest rates are forcing would-be homebuyers to keep renting,” Taylor Marr, deputy chief economist at Redfin, said in a statement. “These are among the demand-side pressures keeping rents sky-high.”