A slowdown in permits and sinking homebuilder confidence foreshadow a mostly somber outlook for U.S. house construction, analysts say.
Builders started a seasonally adjusted 924,000 single-family homes in May, virtually unchanged from the revised April figure but off 7.3% from May 2024, according to data released Wednesday by the U.S. Census Bureau and the Department of Housing and Urban Development. Overall starts, including multifamily, fell to a pandemic-era low of 1.256 million.
The report also showed seasonally adjusted single-family building permits of 898,000, representing declines of 2.7% from April and 6.3% from May 2024. Single-family completions were up from April and last May.
Fewer permits are the likely result of rising inventories of unsold homes that have builders cutting prices, leaving industrywide confidence at its lowest level since late 2022, according to the Tuesday release of the National Association of Home Builders/Wells Fargo Housing Market Index. With single-family permits and construction starts down on a year-to-date basis for 2025, the NAHB is now forecasting that the year will end with fewer single-family starts.
"Although the new home market has been a relative bright spot in the housing sector, these challenges pose risks to its continued strength," said Odeta Kushi, deputy chief economist at financial services firm First American, in an email.
Historically, new construction costs more than an existing home, but that gap has disappeared as builders cut prices and embrace smaller homes, according to Kushi. Still, buyers remain cautious.
Spring is typically the busiest time for home sales as consumers look to buy and get settled before a new school year starts, but builders largely remain unimpressed.
Miami-based Lennar, the nation's second-largest homebuilder based on sales and revenue last year, said this week that prices fell 9% in the second quarter from the same period a year earlier. Earlier this year, KB Home cut prices and sales projections.
Meanwhile, Wells Fargo noted in a report Wednesday that the U.S. West saw the largest decline in single-family permits at 5.1%, with permits also falling across the South and Northeast.
Home construction has withstood elevated mortgage rates in recent years, though the "high-interest rate environment now looks to be exerting greater downward pressure on activity," the banking giant said.