Construction of new homes fell 5.5 per cent in May, the lowest level in four years, as builders pulled back on new projects across the United States.

The pace of construction hit a speed bump as builders grappled with higher-than-normal financing costs, as well as elevated mortgage rates that affect home buyers. Housing starts give an indication of the pace of new U.S. homes that private builders are starting work on.

Housing starts fell to a 1.28 million annual pace from 1.35 million in April, the lowest level since June 2020, during the depths of the COVID-19 pandemic.

The data fell short of Wall Street’s expectations of 1.38 million houses. 

Decline in both single-family and multi-family starts

Both single-family and multi-family starts posted a decline across most of the nation. Builders are worried about interest rates impacting their activity further. In June, the home builders’ industry group expressed concern over financing construction amid elevated borrowing costs.

Building permits, a sign of future construction, fell 3.8 per cent to a 1.39 million rate.

Builders slowed down on starts on all types of homes across most of the nation.

They scaled back on single-family home starts, which fell by 5.2 per cent in May, as well as on apartment starts, which fell even further by 10.3 per cent.

Builders’ pace of construction also slowed across most of the US. The biggest declines in new home building were in the Midwest and the South. Only the West posted an increase in new construction.

Permits for single-family homes fell by 2.9 per cent in May, and 6.1% for apartments.

Big picture: High interest rates are weighing on home builders. With mortgage rates still elevated, and interest rates weighing on financing costs, home builders are scaling back on new construction, as seen in the May figures.

The pullback comes at a time when the US is facing a housing shortage. The nation is short of 4.5 million homes, based on population trends, according to calculations by real-estate brokerage, Zillow.

This month, nearly 30 per cent of home builders surveyed by the National Association of Home Builders reported cutting prices to boost sales of newly built homes.