Housing Starts Slump To Lowest Level In Four Years

ByTMN Editor Reading Time: 2 minutes

Residential construction slumped by more than expected in May, reaching its lowest level in four years.

Housing starts were down 5.5% from April to 1.28 million annual pace, well below analyst expectations of 1.38 million and down from April’s revised 1.35 million, according to new data from the U.S. Census Bureau.

These are the worst numbers since the pandemic put a halt to construction in June 2020.

Permits also declined by 3.8% from the month prior to a 1.39 million rate. Analysts had predicted 1.45 million. Permits act as an indicator of future construction.

This is the fourth straight month that this future construction indicator has fallen.

“Restrictive monetary policy clearly continues to weigh on housing activity,” CIBC Economics’ Ali Jaffery wrote in a note.  “Housing supply is partly being crimped by higher rates, and the housing market in the U.S. could look very strong when the Fed is confident inflation is headed for 2%.”

The data comes just days after the National Association of Home Builders (NAHB) released its Housing Market Index, which showed builder confidence plummeting.

A combination of near-7% rates and elevated construction financing costs are making homebuilders nervous, leading to reduced activity in the sector.

A recent analysis from Zillow found that the U.S. is short 4.5 million homes as household growth exceeds construction.

NAHB Chief Economist Robert Dietz says policies that make it cheaper and easier to build will help not only with housing affordability, but the Central Bank’s ongoing inflation battle.

“We are in an unusual situation because a lack of progress on reducing shelter inflation, which is currently running at a 5.4% year-over-year rate, is making it difficult for the Federal Reserve to achieve its target inflation rate of 2%,” said NAHB Chief Economist Robert Dietz. 

“The best way to bring down shelter inflation and push the overall inflation rate down to the 2% range is to increase the nation’s housing supply. A more favorable interest rate environment for construction and development loans would help to achieve this aim.”