US housing starts crash 15.4% to pandemic-era low in May

America's homebuilders pulled back sharply in May, sending housing starts to their lowest level since the early days of the pandemic.

US housing starts plunged 15.4% month over month in May to a seasonally adjusted annual rate of 1.18 million, the weakest reading since the Covid-19 lockdowns halted construction in 2020, Commerce Department data showed June 16. The print missed the 1.43 million consensus estimate from economists polled by the Wall Street Journal by a wide margin — they had forecast a 2.4% decline.

The collapse was led by the multifamily segment, where starts for buildings with five or more units tumbled to 284,000 from a revised 486,000 in April, according to the Census Bureau and the Department of Housing and Urban Development. Single-family starts slipped a more modest 1.9% to 882,000, an eight-month low. April's headline figure was itself revised sharply lower to a 1.39 million rate, deepening the initial estimate of a 2.8% drop to an 8.5% contraction.

Building permits, a proxy for future construction, fell 0.7% to 1.41 million, roughly in line with the 1.42 million economists had expected. Single-family permits edged up 0.6% to 886,000, while multifamily permits declined to 474,000 from 491,000. Housing completions fell 8.1% month over month to 1.31 million, down 14.2% from a year earlier, indicating the pipeline of finished homes is also tightening.

The housing sector's rapid deceleration — from 1.50 million starts in March to 1.18 million in May — shows that elevated mortgage rates and a growing backlog of unsold homes are chilling developer appetite for new projects. With the 30-year fixed mortgage rate hovering above 6%, the monthly payment on a $400,000 home has risen by roughly $850 compared with the 3% era, squeezing out marginal buyers and lengthening the time to move completed units.

Multifamily Segment Bears the Brunt

The divergence between single-family and multifamily starts highlights a market where developers of rental housing are pulling back most aggressively. Multifamily starts more than halved from the 486,000 pace in April to 284,000 in May, the lowest since the early pandemic period. The retreat reflects a combination of high construction financing costs and a potential oversupply in certain markets where a wave of new apartment deliveries over the past two years has pushed vacancy rates higher. Multifamily permits falling to 474,000 from 491,000 suggests the weakness will persist in coming months.

Single-family activity, while more resilient, is not immune. The 882,000 pace for single-family starts was the lowest in eight months, and single-family completions slipped 1.6% to 872,000. Builders are increasingly offering rate buydowns and price incentives to move inventory, a sign that demand is softening even in the for-sale segment. The National Association of Home Builders' sentiment index has also trended lower in recent months as builder confidence erodes under the weight of persistent rate headwinds.

Affordability Squeeze Tests Recovery Narrative

The data challenges the narrative that the US housing market was staging a sustained recovery after the 2022-2023 rate shock. Instead, the May figures suggest the sector is back in contraction territory, with the three-month trend pointing decisively lower. Builders are now grappling not only with borrowing costs that remain near two-decade highs but also with a supply overhang: the inventory of homes for sale has been climbing, giving buyers more options and reducing the urgency to purchase.

For the Federal Reserve, the housing data adds to a growing body of evidence that high rates are cooling rate-sensitive sectors of the economy more aggressively than the broader services side. Policymakers next meet July 28-29, with markets pricing an elevated probability of a rate cut by September as economic momentum slows. The last time housing starts fell to these levels in mid-2020, the Fed had slashed rates to near zero and was buying mortgage-backed securities to stabilize the market — a policy response that now appears unlikely unless the broader economy deteriorates significantly.

The weakness in residential construction also carries implications for broader economic growth. Housing investment typically accounts for roughly 3% to 5% of US gross domestic product, and a sustained pullback in building activity could shave several tenths of a percentage point off GDP growth in the coming quarters. Lumber prices and other construction-related commodities have already come under pressure as demand for building materials softens.

This article is for informational purposes only and does not constitute investment advice.