New-construction activity on single-family homes remained subdued in May as high interest rates and tariff uncertainty weighed on builder sentiment.
Starts on single-family units, which account for the vast majority of all homebuilding, inched up 0.4% last month from April, to a seasonally adjusted annual rate of 924,000, the U.S. Census Bureau reported Wednesday.
The May figure was down 7.3% from a year earlier. Single-family building permits, a sign of future construction, dropped 2.7% from April and were down 6.4% from the same time last year.
Multi-family starts, which are more volatile, took a nosedive, plunging 30% from the prior month to a seasonally adjusted annual rate of 332,000. Still, that figure was a 4% gain from a year ago.
Combined, total housing starts dropped to their lowest level since May 2020, a troubling trend for a housing market that faces an estimated supply gap of nearly 4 million homes.
“This underscores the effects of the current trade war on homebuilding, augmented by worsening labor shortages and growing concern from builders about housing demand,” says Realtor.com® Chief Economist Danielle Hale. “With tariffs raising materials costs and immigration policy likely worsening labor shortages, the supply side of the equation is difficult and coupled with an environment where demand for new-construction homes is weakening as the number of existing homes for sale grows.”
The slowdown in home construction followed survey data showing that homebuilders are grappling with weak demand, with 40% of builders cutting prices this month to attract buyer interest.
As well, 62% of builders reported the use of other buyer incentives in June, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
“Our latest builder survey shows that development and market conditions remain a major concern for builders, with consumer confidence lower and elevated interest rates for buyers and builders,” says Buddy Hughes, chairman of the NAHB.
NAHB Chief Economist Robert Dietz says that given current market conditions, the homebuilder trade group is forecasting a decline in single-family starts across 2025.
On a regional and year-to-date basis, combined single-family and multifamily starts are up 21.1% in the Northeast, 10.8% higher in the Midwest, 6.8% lower in the South, and down 1.6% in the West.
Despite the recent slowdown in starts, the total supply of new homes for sales remains robust, with more than eight months of supply at the current sales pace available in April.
“With the inventory of existing homes available for sale increasing, prices of those homes have stabilized or have even started to decline in some markets. As a result, home buyers have more options,” says Bright MLS Chief Economist Lisa Sturtevant.
The share of homebuilders reporting price cuts rose this month to its highest level in records dating back to 2022, as builders struggled to lure potential homebuyers from the sidelines.
“This means that shoppers in the market for a new home will still have options in many markets and are likely to be in a good place to negotiate,” says Hale. “But builders are already adjusting their outlooks, and slowing the development pipeline which could mean that new homes are harder to come by in the next year.”