Adobe Stock/Alexandr Ivasenko

Construction of new homes fell 5.5% in May, reaching the lowest level in four years, according to the U.S. Census Bureau and the Department of Housing and Urban Development.

“Multifamily accounted for most of the annual decline in May’s starts and permits as the apartment sector is expecting peak levels of new deliveries this year,” says Eric Alanis, senior analyst of published research for Zonda. “It is evident, however, that single-family home builders are also pulling back as they wait for a signal on Fed rate cuts.”

Privately owned housing starts were at a seasonally adjusted annual rate of 1,277,000, 5.5% below the revised April rate and 19.3% below the May 2023 rate. Single-family starts ran at a rate of 982,000 in May, 5.2% below the revised April rate. The May rate for units in buildings with five units or more was 278,000.

“The elevated interest rate environment has pressured single-family home builders on both the demand and supply side,” Alanis says. “Potential home buyers have been deterred by high mortgage rates, and higher costs for development and construction financing have added to the multitude of challenges builders face to produce more homes.”

Privately owned units authorized by building permits in May were at a seasonally adjusted annual rate of 1,386,000, down 3.8% from the previous month and 9.5% on a year-over-year basis. Single-family permits decreased 2.9% from April to a rate of 977,000 in May. Authorizations of units in buildings with five units or more were at a rate of 382,000 in May.

“Builders find it difficult to build houses that home buyers can afford with mortgage rates around 7%. While they wait for rates to fall, builders are holding back and applying for fewer construction permits,” Holden Lewis, home expert at NerdWallet, says. “Home building will rebound when mortgage rates to 6.5% or lower.”

Privately owned housing completions in May were at a seasonally adjusted annual rate of 1,514,000, 8.4% below April levels and 1% above May 2023 rates. Single-family completions in May were at a rate of 1,027,000, 8.5% below the revised April rate. The May rate for units in buildings with five or more units was 479,000.