U.S. Housing Starts and Permits (May 2024)

Homebuilding activity pulled back in May

• Housing starts fell 5.6% month-on-month (m/m) in May to 1.28 million (annualized) units, coming in below the consensus forecast of 1.37 million. Revisions to the two prior months added roughly 4k units to the previous reported tallies.
• The decline in housing starts was equally distributed between the single-family and multi-family segments, with the former down 5.2% m/m (or 54k units) and the latter down 6.7% m/m (or 21k units).
• Residential permits also fell by more than expected – declining 3.8% m/m to 1.39 million annualized units. Single-family permits fell 2.9% m/m, marking a fourth consecutive month of declines, while multi-family permits fell 5.6% m/m.
• Among the four Census regions, declines were seen in the Northeast (-2.5% m/m), the South (-8.5% m/m), and the Midwest (-19.0% m/m), while gains were recorded in the West (+10.4% m/m).

Key Implications

• Homebuilding activity retreated in May as elevated mortgage rates continued to weigh on demand. Single-family starts fell to the lowest level in 7 months while multifamily starts remain near the nadir seen during early-2020. Both segments have now seen 3-4 consecutive months of declines in permits, indicating that further weakness is likely in the pipeline as the volume of units under construction continues to decline gradually.
• Units under construction remain more than 30% above pre-pandemic levels, which combined with the slowdown in buyer demand has pushed the months' supply of new single-family homes to its highest level since late 2022. These conditions have continued to weigh on homebuilder sentiment, with the National Association of Homebuilders sentiment index falling to its lowest level of the year in May. Elevated financing costs are expected to remain a headwind for homebuilding over the coming months, with the median expectation of FOMC members for the number of rate cuts this year revised down to 1 in the most recent Summary of Economic Projections.  

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