Despite a slight increase in single-family starts, privately-owned housing starts fell 9.8% in May
While single-family housing starts saw a slight increase in May, increased materials costs, high interest rates, and economic uncertainty were evident in overall housing starts and permits. New housing starts and building permits were all down from April’s totals.
The monthly new residential construction report, released by the US Census Bureau on Wednesday, showed 1.256 million privately-owned housing starts in May. This was a 9.8% decline from the revised April estimate of 1.392 million. It also showed a 4.6% drop year-over-year from the May 2024 total of 1.316 million.
Odeta Kushi, deputy chief economist at First American, said challenges in the multifamily market caused the decline.
“Housing starts plummeted 10% in May to their lowest level since 2020, falling short of consensus expectations,” Kushi said. “The month-over-month pullback was primarily due to a decline in the volatile multifamily groundbreaking, while a decline in single-family building permits points to a weaker trend moving forward.”
One bit of good news was that single-family housing starts slightly increased from April to May. There were 924,000 single-family housing starts in May, up 0.4% from April’s revised figure of 920,000. The rate for units in buildings with five or more units was 316,000.
However, Kushi said higher costs, among other factors, could weigh down single-family starts over the next few months.
“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,” she said. “This mix is weighing on builder sentiment and likely to slow single-family construction.”
Both overall and single-family housing permits were down in May. Overall, there were 1.393 million housing permits, down 2% from April’s total of 1.422 million. It was also down 1% year-over-year from the May 2024 total of 1.407 million.
There were 898,000 single-family permits in May, down 2.7% from the 923,000 permits in April. The number of permits in buildings with five or more units was 444,000 in May.
Housing completions increased month-over-month but dropped from the same time period last year. Overall housing completions were up 5.4% in May, with 1.526 million completions. This was an increase over April’s total of 1.448 million. However, it was down 2.2% from the 1.561 million completions in May 2024.
Single-family housing completions in May were up 8.1%, totaling 1.027 million. This outpaced April’s total of 950,000. The rate for buildings with five or more units was 487,000.
Numbers align with builder confidence
Wednesday’s report from the US Census Bureau aligns with Tuesday’s National Association of Home Builders (NAHB) report, which showed builder confidence dropping to its third-lowest level since 2012.
The builder sentiment for newly constructed single-family homes dropped to 32 in June, a two-point decline from May. Since 2012, the index has shown less builder confidence only in December 2022 and April 2020.
“The steep drop is not entirely surprising considering that builder sentiment in June reached one of its lowest levels in 13 years,” Kushi said. “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.”
Kushi noted that because of price declines on new homes, homebuyers might find better deals in the new home market. She said that 37% of builders reported cutting prices in June, the highest percentage since the NAHB began tracking that in 2022. The use of sales incentives increased to 62% in June, up 1% from May.
“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 said. “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.”
Elevated interest rates likely to continue
It doesn’t appear that elevated interest rates will abate anytime soon. The Federal Reserve is expected to announce a hold on interest rates later today, despite calls from both the Trump Administration and from some top economists that a rate cut is overdue.
New home construction faces challenges from high rates and tariffs, but Rich Martin, director of real estate lending solutions at Curinos, sees temporary rate buydowns increasing, especially for FHA products, offering a solution to offset costs.https://t.co/8pUyRptDcw
— Mortgage Professional America Magazine (@MPAMagazineUS) June 13, 2025
Despite earlier forecasts from Fannie Mae that projected rates to drop to near 6% by the end of 2025, a more recent survey of experts released by Reuters showed a decline to 6.73% by year’s end.
Kushi told Mortgage Professional America that forecasting interest rates is challenging. She believed a drop to near 6% would be possible if certain economic conditions aligned.
“Mortgage rate forecasting is notoriously difficult,” Kushi said. “Rates are shaped by economic fundamentals, investor sentiment, and global geopolitical risks. In the short term, tariffs and trade policy pose downside risk to growth and upside risk to inflation, a tricky balance for the Federal Reserve.
“If inflation stabilizes and the Fed begins to shift toward a more accommodative stance to prevent a slowdown, we could see mortgage rates decline gradually over the second half of the year. Mortgage rates close to 6% are not out of the question. It just depends on how the economic data unfolds.”
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