The pace of new home construction crashed 14.4 percent in May, the Commerce Department said Thursday, as higher interest rates and high home prices drove away buyers and depressed home builder sentiment.
Housing starts fell to an annual rate of 1.55 million and permits fell to 1.7 million. Economists had forecast 1.7 million starts and 1.78 million permits.
April starts were revised up to 1.81 million from the preliminary estimate of 1.72 million. April permits were revised up from 1.189 million to 1.823 million.
Single-family home starts fell 9.2 percent in May and permits were down 5.5 percent.
Starts on apartment starts fell 26.8 percent while permits plunged 10 percent.
Home builder confidence has been falling for six consecutive months and May appears to have been a tipping point for many builders. The June reading came in as the lowest since June 2020, when the country was in the grips of the initial lockdown reaction to the Covid pandemic. Although housing prices continue to climb, sales have slowed amid the highest mortgage rates in many years.
“Six consecutive monthly declines for the HMI is a clear sign of a slowing housing market in a high inflation, slow growth economic environment,” NAHB Chairman Jerry Konter, a builder and developer from Savannah, Ga., said Wednesday.
Consumer prices were up 8.6 percent in May compared with a year earlier, making it harder for families to save for a new home. Home prices were up more than 20 percent in March, the most recent date available. Mortgage rates have jumped above six percent recently and were above five percent in May.