Tuesday’s report shows contractors are still showing restraint as they work down the supply of new homes for sale amid sluggish demand. Many have cut prices and subsidized customers’ mortgage rates to find buyers, while builders also have slowed production of “spec homes,” which are houses built without a signed contract in hand.
Economists attributed some of the sharp drop in apartment buildings to choppiness in the figures.
In a note Tuesday, Samuel Tombs, chief US economist at Pantheon Macroeconomics, called May’s construction decline “unalarming” since monthly starts are volatile, especially for multifamily data. However, the longer-term housing outlook is still weak, he said.
“A recovery in homebuilding remains a long way off,” Tombs said. “Mortgage rates remain too high for many people to consider purchasing their first home, and hopes of the FOMC being able to ease policy this year have dimmed,” refering to the Federal Open Market Committee, the Federal Reserve’s rate-setting body.
Total building permits, which point to future construction, fell 0.7% in May to an annualized rate of 1.41 million. Permits for one-family homes rose slightly.
What Bloomberg Economics Say…
“We’re more surprised by the concentrated decline in multifamily construction than by the headline figure. With homeownership far out of reach for the median prospective buyer, we expect single-family starts to be under persistent pressure. But we think the decline in multifamily construction will prove temporary as builders refocus on bringing smaller, more affordable units and rentals to market.”
—Stuart Paul
President Donald Trump has tried to prod builders to increase home production, hoping to improve affordability ahead of the midterm congressional elections. The president has taken to social media to blast homebuilders for “sitting on 2 million empty lots” and proposed banning institutional investors from buying single-family rental homes. Legislation that would curb investor home purchases, although weakened from its original form, is pending before Congress.
All regions saw a drop in construction, except the Midwest. In the South, the biggest homebuilding region, starts fell to the lowest since May 2020, driven by a sharp decline in apartment buildings.
The new residential construction data are volatile, and the government report showed 90% confidence that the monthly change ranged from a 25.2% drop to a 5.6% decline.
The National Association of Realtors will provide a look at the home resale market on Wednesday with its release of the pending home sales report for May.
— By Michael Sasso (Bloomberg)
