Surprising news on Wednesday as we learn that the latest residential construction data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development show that overall housing starts in May dropped a substantial 9.8% compared to the reading in April, and ranks below May 2024 starts by 4.6%. This is the slowest pace in housing starts in the last five years.
See more on the latest housing starts data
The latest government data shows that the seasonally adjusted annual rate of housing starts in May came in at 1.256 million units. This rate is 9.8% below the revised April rate of 1.392 million units and 4.6% lower than the rate of 1.316 million units a year ago in May 2024.
Perhaps most surprising is the fact that this is the slowest pace of construction starts in 5 years. Many in the media are calling this a housing slump.
Single-Family Housing Starts are Flat; Building Permits Issued Also Declined
Single-family housing starts fared better, but only slightly, with starts coming in at 924,000 units, up just 0.04% over the revised April rate of 920,000. This single-family rate is also down 7.3% below the 997,000 unit rate in the same month a year ago. With single-family starts increasing only 4/10ths of 1 percent in May, it is essentially flat.
Also posing some concerns, building permits – a leading indicator of future construction activity – also showed declines in May. Overall housing permits issued in May came in at 1.393 million units, down 4.0% below the revised April permit rate of 1.422 million units authorized and 1% below the May 2024 permits issued rate of 1.407 million units.
The Rate of Permits Issued for Future Construction Hits a 5-Year Low
Single-family permits issued in May also declined, coming in at 898,000 issued, down 2.7% compared to the revised April rate of 923,000 permits issued. The May single-family result for permits issued was also down 6.4% compared to last year, when 959,000 permits were issued in May 2024.
This rate of permits issued in May is also at a 5-year low, according to Axios.
‘A Substantial Decline in Real Activity’
We appear on course for a substantial decline in real activity in the current quarter and perhaps further weakness in the summer.
Stephen Stanley, Chief U.S. Economist at Santander U.S. Capital Markets to the Reuters News Agency
The almost double-digit percentage decline in overall housing starts caught many analysts off-guard. Trading Economics reported that a survey of economists projected overall starts in May would come in at 1.36 million units. They were off by 7.7% – a big difference. Consequently, the actual results have caught the attention of many economists and analysts.
All Regions Except the West Have Seen A Decline in Housing Starts
Breaking down the national housing starts numbers on a regional basis, we find that other than the West region, which had a 15.1% increase in starts, all other regions declined – Northeast (-40.0%), Midwest (-10.2%), and South (-10.5%).
Why did residential construction collapse? Many analysts noted that May was the first month following the Trump Administration’s announcement of its aggressive tariff increases, which took place in early April. This announcement caused heightened concerns in many consumers (and Wall Street) that the economy is heading into a decline and inflation is likely to increase.
Home Builder Sentiment Hits 2-1/2-Year Low
Tariffs have also hit the home builders hard, causing the acquisition cost of building materials such as lumber, aluminum, and steel to increase, for example. Also, the administration’s immigration crackdown has negatively impacted the builder community’s source of immigrant labor. With mortgage rates still elevated and consumers cautious, builders themselves are getting cautious and are cutting back on construction starts.
A recent survey of home builders by the National Association of Home Builders found that builder sentiment among single-family homebuilders “plummeted to a 2-1/2-year low in June.” What’s stressing out builders? At the same time that building material costs are increasing, builders are forced to cut finished home prices “to lure buyers” into their showrooms.
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