New residential construction showed mixed signals in May, offering glimmers of progress in completions but largely falling short on starts and permits.
According to new data released Wednesday by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD), the broader picture shows stagnation rather than recovery.
Privately owned housing starts dropped 9.8 percent from April to a seasonally adjusted rate of 1,256,000. That figure is also 4.6 percent below the May 2024 rate of 1,316,000, marking the weakest pace since 2020.
Odeta Kushi | First American Deputy Chief Economist
“Housing starts plummeted 10 percent in May to their lowest level since 2020, falling short of consensus expectations,” First American Deputy Chief Economist Odeta Kushi said in a statement. “The month-over-month pull back was primarily due to a decline in the volatile multi-family groundbreaking, while a decline in single-family building permits points to a weaker trend moving forward.”
Single-family starts edged up just 0.4 percent to 924,000 units, while multifamily construction took a deeper hit, falling to 316,000 units — down from 371,000 in April.
According to Kushi, the data comes amid growing pessimism among homebuilders, as is reflected in the latest National Association of Home Builders (NAHB) Housing Market Index (HMI).
“The steep drop is not entirely surprising considering that builder sentiment in June reached one of its lowest levels in 13 years, the only exceptions being April 2020 and December 2022,” Kushi explained. “This growing builder pessimism was widespread across all HMI components. Optimism about single-family sales for the next six months dropped by two points, and current sales conditions also fell by two points, marking the lowest level since June 2012. Prospective buyer traffic decreased from 23 to 21.”
Source: U.S. Census Bureau and the Department of Housing and Urban Development (HUD)
While completions provided a modest bright spot, increasing 5.4 percent from April to a rate of 1,526,000, they were still 2.2 percent below levels from the previous year. Single-family completions rose to 1,027,000, an 8.1 percent gain month over month, but multifamily completions dipped again, reaching 487,000 units in May from 503,000 units in April.
On the forward-looking side, building permits — an indicator of future construction — painted a dimmer picture. Privately-owned permits fell 2 percent from April to a rate of 1,393,000. This figure is also down 1 percent from May 2024. Single-family permits dropped 2.7 percent, while multifamily permits were relatively flat at 444,000.
According to Kushi, this data stands in stark contrast to what was seen in new-home sales early this spring.
“The weak construction data contrasts sharply with strong new-home sales in April, which made up the highest share of total sales since 2005,” Kushi noted.”
“Consider that new-home sales might offer a better deal for buyers than existing homes. Historically, new homes are priced at a premium relative to existing homes, but that gap has flipped. In April, the median price of a new home ($407,200) was actually lower than the median price of an existing home ($414,000), partly due to price cuts and builders constructing smaller, less expensive homes,” she added.
Those price adjustments are also showing up in builder strategy.
“The latest HMI survey data bears this out, revealing that 37 percent of builders reported cutting prices in June, the highest percentage since NAHB began tracking this figure monthly in 2022,” Kushi said. “Additionally, the use of sales incentives increased to 62 percent in June, up one percentage point from May.”
Still, a combinations of challenges continue to hold back construction activity, especially in the single-family sector.
“Builders face higher financing costs, tariff uncertainty, softer demand from elevated rates, increased competition from rising existing-home inventory in key markets like Texas and Florida, and higher inventories of their own,” Kushi said. “This mix is weighing on builder sentiment and likely to slow single-family construction.”
