New U.S. home construction fell sharply in May, undershooting expectations and highlighting the strain that elevated interest rates continue to place on the housing market.
Housing starts declined 9.8 percent in May to a seasonally adjusted annual rate of 1.256 million, the slowest pace since June 2020, according to data released Wednesday by the U.S. Census Bureau and the Department of Housing and Urban Development. That figure fell well short of the consensus estimate of 1.360 million starts, according to Econoday.
The drop was led by a steep pullback in multifamily construction, which plunged nearly 30 percent from the prior month. Permits for buildings with five or more units also remain subdued, signaling continued weakness ahead. Single-family starts, by contrast, edged up 0.4 percent to 924,000—a modest gain but one that was not enough to offset the broader decline.
New building permits, a leading indicator of future construction, slipped 2.0 percent to a 1.393 million annual rate—down both from April and from a year ago. Authorizations for single-family homes declined 2.7 percent to the slowest pace since April 2023.
While some categories of housing activity remain resilient—particularly completions, which rose 5.4 percent in May—the overall picture has deteriorated. Year-to-date, total housing starts are down 1.5 percent compared to the same period last year, with single-family starts off 7.1 percent.
Economists widely point to high borrowing costs as the key factor constraining home construction. The average 30-year fixed mortgage rate remains near 7 percent, and real interest rates—those adjusted for inflation—have been rising as inflation has unexpectedly plunged. The Federal Reserve has held its benchmark rate steady since December and signaled at its last meeting that cuts are unlikely in the near term. The Fed is widely expected to keep rates unchanged at the conclusion of its June meeting on Wednesday.
That posture is contributing to the affordability crisis facing many American families. With existing home inventory still limited and home prices remaining high, weak new construction limits relief on both the rental and ownership sides of the market.
The slowdown in homebuilding also comes amid declining builder sentiment. The National Association of Home Builders reported this week that its Housing Market Index fell to its lowest level since 2022.
The next report on new residential construction will be released on July 18.
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