High interest rates continued to batter the housing market in May as both single and multifamily starts continued their slide from April. Overall housing starts dropped 5.5% from the month prior as noted in the U.S. Department of Housing and Urban Development and the U.S Census Bureau.
Single family numbers specifically dropped 5.2% to a seasonally adjusted annual rate of 982,000 units, below April’s adjusted rate of 1.036 million units. This is still up 18.8% compared to May of last year.
Multifamily starts, meanwhile, have declined another 6.6% from April to 295,000. This, notes the NAHB in its press release, is the lowest rate for MDU construction since April 2020, nearing the height of the pandemic.
At the time of writing, lumber prices currently sit below pre-pandemic prices, despite post-pandemic inflation.
During this time, the average rate on the 30-year fixed mortgage has danced between over and under 7% with current data showing that it has since crept under, lowering to 6.86% according to Freddie Mac despite the May average hovering around 7.06%.
The lowering rates come at a time where a cooling labor market has many hopeful that the Federal Reserve will be able to make two rate cuts as opposed to the current one that is expected.
“Overall lower housing production correspond with our latest industry surveys, which show builders are concerned with a high interest environment that is making it harder to get acquisition, development and construction loans to increase home building activity,” said Carl Harris, chairman of the National Association of Home Builders (NAHB) and custom home builder from Wichita, Kan.
“Higher rates for builder and developer loans, along with ongoing supply-side challenges regarding construction labor and buildable lots, are acting as headwinds for new home and apartment construction.”
Permits for future construction of single-family homes consequently fell 2.9% to a rate of 949,000 units in comparison to April as consumer demand for home continues to fall. Multifamily permits also decreased 5.6% to 437,000 for May, signaling waning demand sentiment in the overall market.
Existing home sales also took a hit in May, according to NAR data, descending 0.7% from April while being down 2.8% from May of last year. Despite this, the median existing home sales price has risen 5.8% from May 2023 to $419,300, the highest price ever recorded and the eleventh consecutive month of year-over year price gains.
During this time, the inventory of unsold existing homes grew 6.7% from April to 1.28 million, the equivalent of 3.7 months supply at the current sales rate. Houses are now staying on the market roughly 24 days before being sold.