U.S. single-family homebuilding falls to eight-month low as rates bite

Housing remained a drag on the U.S. economy in May as single-family homebuilding fell to an eight-month low, a sign that builders are still pulling back even as the country remains short of homes. The decline deepened the split between weak demand and stubborn supply constraints: buyers are being squeezed by monthly payments, while builders are facing financing and materials costs that make new projects harder to justify.

The Census Bureau said single-family starts slipped 1.9% to a seasonally adjusted annual rate of 882,000 units, the weakest pace since last September. Total housing starts fell 15.4% to 1.177 million units, a six-year low, while completions dropped 8.1% to 1.313 million. Even though single-family permits rose 0.6% to 886,000, the increase was too small to offset the drop in starts, suggesting many builders are still waiting for a more favorable rate environment before breaking ground.

Mortgage costs remain a central brake. Freddie Mac said the 30-year fixed mortgage averaged 6.52% in the week ending June 11, up from 6.48% a week earlier and 6.84% a year ago. Rates have climbed by more than 50 basis points since the conflict between the United States and Iran began, after oil prices, inflation and Treasury yields moved higher. For would-be buyers, that keeps affordability under pressure just as the market needs more supply.

The National Association of Home Builders said confidence among builders fell two points to 35 in June, the 14th straight month below 40 and the longest such stretch since the 2011-2012 foreclosure crisis. The group said 35% of builders cut prices in June and 62% used sales incentives. Bill Owens said the country is short about 1.2 million homes, while Jing Fu said year-to-date declines in single-family starts and permits underscored persistent housing-market challenges. Single-family homes under construction totaled 587,000 units, 5.9% below a year earlier.

The broader economy is already feeling the strain. Residential investment has contracted for five straight quarters, which means homebuilding is not contributing to second-quarter growth. Regionally, combined starts were stronger in the Northeast but weaker in the Midwest, South and West. Unless borrowing costs ease over the next six to 12 months, the housing market looks set to stay trapped: too expensive for many buyers, too costly for many builders, and too weak to deliver the supply relief the market still needs.