According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development housing starts declined 15.4% over the month to an annualized rate of 1.177 million in May, well below forecasts for 1.43 million. This was below the revised April estimate of 1.392 million. Overall housing starts were down 8.7% over the year. Regarding the two major components of aggregate housing starts, single-family was at a seasonally adjusted annual rate of 882,000, down 1.9% from the previous month, while projects in buildings with five units or more declined 42% to a rate of 284,000 SAAR. Building permits, as a leading indicator of future activity, came in at a rate of 1.413 million SAAR, 0.7% below the prior month.
The ABA Office of the Chief Economist interprets the monthly decline in housing starts as continued evidence that housing construction remains constrained by the recent increase in material costs and moderately tight financing conditions. Continued low construction activity could further reduce demand for construction loans. However, with building permits coming in only slightly below April’s rate, May’s sharp decline in housing starts could just be a temporary setback.
