Construction of new U.S. homes fell 5.5% in May, dropping to the lowest level since 2020, according to data released June 20 by the Census Bureau and the Department of Housing and Urban Development (HUD). The pace of construction worsened as builders are dealing with high financing costs as well as elevated mortgage rates that hinder many homebuyer hopefuls.
“Overall lower housing production corresponds with our latest industry surveys, which show builders are concerned with a high interest environment that is making it harder to get acquisition, development and construction loans to increase homebuilding activity,” said Carl Harris, chairman of the National Association of Home Builders (NAHB). “Higher rates for builder and developer loans, along with ongoing supply-side challenges regarding construction labor and buildable lots, are acting as headwinds for new home and apartment construction.”
On the demand side, mortgage rates averaged 7.06% in May per Freddie Mac, the highest reading since November 2023. This high interest rate environment is causing many potential buyers to remain on the sidelines.
“It is not just the single-family market that is experiencing challenges. The three-month moving average for multifamily starts is the lowest since the fall of 2013 as the multifamily development deceleration continues,” said NAHB Chief Economist Robert Dietz.
The ratio of multifamily completions to starts (the total number of apartments completing construction compared to those starting construction) was 1.8 in May, tied with April for the highest ratio since Covid.
“This ratio was 0.6 in April 2022 when many more apartments were starting construction compared to finishing construction, demonstrating the significant reversal for the multifamily construction pipeline,” said Dietz.
The number of apartments under construction is now down to 914,000, the lowest count since September 2022, and down 11% since the peak rate in June 2023.
On a regional and year-to-date basis, combined single-family and multifamily starts are 22.2% lower in the Northeast, 8% lower in the Midwest, 2.3% lower in the South and 2.6% higher in the West. Declines for multifamily construction are driving the weakness for those regions showing year-to-date total housing starts declines.
The numbers
Privately‐owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 1,386,000, 3.8% below the revised April rate of 1,440,000 and 9.5% below the May 2023 rate of 1,532,000. Single‐family authorizations in May were at a rate of 949,000, 2.9% below the revised April figure of 977,000. Authorizations of units in buildings with five units or more were at a rate of 382,000 in May.
Privately‐owned housing starts in May were at a seasonally adjusted annual rate of 1,277,000, 5.5% below the revised April estimate of 1,352,000 and 19.3% below the May 2023 rate of 1,583,000. Single‐family housing starts in May were at a rate of 982,000, 5.2% below the revised April figure of 1,036,000. The May rate for units in buildings with five units or more was 278,000.
Privately‐owned housing completions in May were at a seasonally adjusted annual rate of 1,514,000. This is 8.4% below the revised April estimate of 1,652,000, but 1% above the May 2023 rate of 1,499,000. Single‐family housing completions in May were at a rate of 1,027,000, 8.5% below the revised April rate of 1,122,000. The May rate for units in buildings with five units or more was 479,000.
