Building of new homes in the U.S. dropped 5.5% in May, to its lowest level in four years, as builders slowed down on new projects.
Builders had to deal with higher-than-normal financing costs and higher mortgage rates that affect home buyers, which slowed down the building process.
The number of home starts dropped from 1.35 million in April to 1.28 million in May, the government said Thursday. That many homes would be built in a year if they are built at the same rate every month as they were in May.
In May, housing starts dropped to their lowest level since June 2020, when the COVID-19 pandemic was at its worst.
The numbers were lower than what Wall Street thought they would be—1.38 million homes. All of the numbers have been changed to account for the seasons.
In most of the country, both single-family and multi-family starts went down.
Builders are worried that interest rates will make their work even harder. In June, a group for home builders expressed concern about how to pay for construction when the cost of borrowing money was high.
The number of building permits, which show that new buildings will be built, dropped 3.8% to 1.39 million.
Important facts: Builders slowed down the start of all kinds of homes across most of the country.
In May, they cut back on both single-family home starts and apartment starts. Single-family home starts fell by 5.2% and apartment starts fell by 10.3%.
The speed at which builders worked also slowed down in most of the U.S. The Midwest and the South saw the biggest drops in the number of new homes being built. Only in the West did the number of new homes go up.
Single-family home permits dropped by 2.9% in May, and apartment permits dropped by 6.1%.
In general, home builders are having a hard time because of the high interest rates. The May numbers show that home builders are reducing the number of new homes they build because mortgage rates and interest rates are still high.
The pullback happens at a time when there are not enough homes for sale in the U.S. Zillow, a real estate brokerage, says that based on population growth, the country needs 4.5 million more homes.
Certainly, housing starts are a very unstable set of numbers, but the overall trend shows that builders are worried about how much demand there is for homes. In June, the National Association of Home Builders polled home builders and found that almost 30% said they were lowering prices to sell more new homes.
What do they mean? In a note, Ali Jaffery at CIBC Economics said, “It is clear that restrictive monetary policy continues to weigh on housing activity.”
Higher rates are limiting the number of homes that can be built, and the U.S. housing market could look very strong when the Fed is sure that inflation is going to reach 2%, he said.
What the market did: U.S. stocks, like the DJIA and SPX, were up at the start of trading on Thursday. The 10-year Treasury note BX:TMUBMUSD10Y had a yield of more than 4.2%.
During the morning, the SPDR S&P Homebuilders ETF XHB went down. However, most of the big home builder stocks went up, such as Lennar LEN, 0.64%, Toll Brothers TOL, -1.51%, and Pulte Homes PHM, -0.51%.
