Housing Starts Hit Record Low Since Pandemic: Economic Outlook

Housing Starts Decline Sharply

The number of housing units that started construction in May fell to the lowest level since 2020, reflecting a troubling trend in the residential market.

Current Statistics

• Housing construction dropped by 9.8% from April to May.
• If this trend continues, only 1.25 million units may be built in 2025.
• Year-over-year, the numbers are down 4.6% from the previous rate of 1.4 million units.

Market Commentary

Nationwide economist Ben Ayers stated, “Housing starts plunged in May as builders stepped back amidst fading demand and rising costs.” Additionally, new building permits decreased by 2% from April while housing completions rose 5.4% month-over-month but fell 2.2% year-over-year. The housing sector experiences pressures from high interest rates imposed by the Federal Reserve to combat post-pandemic inflation.

Factors Driving Market Changes

• Interest rate hikes increase borrowing costs, making financing for homes more expensive.
• While CPI inflation has decreased, shelter inflation remains high at 3.9%.
• Current rates for 30-year fixed mortgages sit at 6.84%, compared to 3.5% pre-pandemic rates.
• Housing inventories are now at their highest since November 2019.

A Critical Housing Shortage

The U.S. grapples with a critical shortage of affordable housing, with estimates ranging from 1.5 million to 5.5 million units short. Analysts noted that the drop in starts was particularly concentrated in multifamily construction, casting a shadow on efforts to alleviate the affordable housing crisis. “A sharp downward shift in multifamily construction drove the decline in May,” Ayers remarked.