Housing starts activity dries up as building industry suffers from economic fatigue
US housing starts posted a second straight monthly drop in May, highlighting the impact of rising mortgage rates and persistent supply chain disruptions.
The Census Bureau reported Thursday that new residential construction projects plunged 14.4% in May to a seasonally adjusted annual rate of 1.55 million units. Last month’s reading is below the upwardly revised April reading of 1.81 million and below last year’s rate of 1.61 million.
“Housing starts decreased in May for the second month in a row, as mortgage rates increased to above 5% and inflation continued to impact consumer spending,” said Kelly Mangold, principal at RCLCO Real Estate Consulting. “Uncertainty around quickly changing economic conditions has caused sentiment in the building industry to falter, and housing starts slowed in reaction to these factors, as well as in light of persistent supply chain issues.”
Within the overall construction figure, single-family starts fell 9.2% to a 1.05 million annualized rate. The multifamily sector, which includes apartment buildings and condos, saw a staggering 23.7% decline to an annualized 498,000 pace.
“Single-family home building is slowing as the impacts of higher interest rates reduce housing affordability,” said Jerry Konter, chairman of the National Association of Home Builders (NAHB). “Moreover, construction costs continue to rise, with residential construction materials up 19% from a year ago. As the market weakens due to cyclical factors, the long-term housing deficit will persist and continue to frustrate prospective renters and home buyers.”
In further signs that the housing market is weakening, NAHB chief economist Robert Dietz noted that single-family permits are down 2.5% on a year-to-date basis, and home builder confidence has declined for the last six months.
Meanwhile, housing completions are on the rise due to the acceleration in construction activity in recent quarters, up 9.1% month over month to a seasonally adjusted rate of 1.47 million. Single-family completions increased 8.5% to 1.04 million, and multifamily completions were 417,000 as inventories start to recover.
Taking other market factors into consideration, Mangold said: “The job market continues to perform strongly, and millennials continue to move into family-formation years, indicating that there is likely still pent-up demand for housing – though some may be taking a more ‘wait-and-see’ stance until conditions settle down.”
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