Housing Starts Retreat in May

Single-family and multifamily housing starts fell in May as high interest rates for construction and development loans and elevated mortgage rates held back both housing supply and demand.

Overall housing starts fell 5.5% in May to a seasonally adjusted annual rate of 1.28 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.  

The May reading of 1.28 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts decreased 5.2% to a 982,000 seasonally adjusted annual rate. However, on a year-to-date basis, single-family starts are up 18.8%, albeit off weak early 2023 data. 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.

The multifamily sector, which includes apartment buildings and condos, declined 6.6% to an annualized 295,000 pace. This is the lowest pace for apartment construction since April 2020. The three-month moving average for multifamily starts is the lowest since the fall of 2013 as the multifamily development deceleration continues.

The ratio of multifamily completions to starts (the total number of apartments completing construction compared to those starting construction) was 1.8 in May, close to tied with April for the highest ratio since COVID-19. 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.

The number of apartments under construction is now down to 914,000, the lowest count since September of 2022 and down 11% since the peak rate in July 2023. There are 679,000 single-family homes under construction, off 18% since late Spring 2022.

On a regional and year-to-date basis, combined single-family and multifamily starts are 22.2% lower in the Northeast, 8.0% 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.

Overall permits decreased 3.8% to a 1.39-million-unit annualized rate in May. Single-family permits decreased 2.9% to a 949,000 unit rate; this is the lowest pace since June 2023. Multifamily permits decreased 5.6% to an annualized 437,000 pace.

Looking at regional data on a year-to-date basis, permits are 0.7% higher in the Northeast, 5.3% higher in the Midwest, 0.8% higher in the South, and 1.5% lower in the West.