May 2024 Housing Starts: New Construction Slows As Inventory Accumulates

• Building permits issued in May decreased to 1,386,000 (SAAR). That’s 3.8% below the revised April rate and 9.5% lower than a year ago.
• Housing starts decreased to 1,277,000 (SAAR) in May, down 5.5% from the revised April estimate and 19.3% lower than a year ago, according to the U.S. Census Bureau. 
• Single-family housing starts decreased to 982,000 (SAAR) in May, down 5.2% from April and 1.7% below last May.

What happened: With more homes being completed and no clear line of sight into the path of interest rates, builder confidence fell and many of them scaled back on starting new projects. Single-family housing starts are now 1.7% below last year’s pace and construction on buildings with 5 or more units is nearly 51.7% lower than a year ago – attributed in large part to the already large number of apartment buildings being completed and easing apartment rent growth.

Why this matters: The slowdown in single-family housing starts could reflect a cautious outlook from builders largely due to higher-for-longer interest rates translating to easing housing demand during a time of year when acceleration is typically expected.

Inventory is increasing. According to Zillow data, homes that sold went pending in just 13 days – unchanged from a month ago. While appropriately priced homes still sell fast, many expected home sales would rebound from last year’s trough. Total for-sale inventory is now up 22% from this time last year.

The housing stock is growing and builders continue to add to the inventory count. In May, single-family home completions were still roughly 1% higher than a year ago. With more homes coming on the market and no equally large uptick in housing sales, total for-sale housing inventory is higher than it was a year ago.

Last month, 29% of builders cut prices compared to 25% of builders a month ago, according to the National Association of Home Builders. As mortgage rates remain high, the use of incentives ticks up. Meanwhile, the average builder price cut remains stable at 6%.