Single-Family Home Construction Falls Again in May in the Face of Soaring Borrowing Costs

Construction activity on new single-family homes retreated in May alongside permits and completions in the face of economic uncertainty, high borrowing costs, and material rates, the U.S. Census Bureau reported on Tuesday.

Single-family housing starts last month were a seasonally adjusted annual rate of 882,000, down 1.9% from April and 6.7% from a year ago.

Total housing starts in May also experienced a significant pullback, plunging 15.4% month over month and 8.7% year over year to a seasonally adjusted annual rate of 1.17 million units, driven by a sharp decline in the multifamily sector.

Starts of units in projects of five units or more were down to their lowest level in over a year, 41.6% below last month and 12.3% below May of last year.

"The dramatic month-over-month swing suggests maybe some May starts and completions were recorded in April, but coming in so far behind last year at this time suggests some genuine softness in the construction activity as well," says Realtor.com® senior economist Joel Berner.

Municipalities across the U.S. issued 1.413 million permits for the construction of private housing in May, 0.7% below April's rate of 1.42 million and 0.2% below May 2025's 1.416 million.

"Year-to-date declines in single-family housing starts and permits underscore the continued challenges in the housing market," says Jing Fu, senior director of forecasting and analysis at the National Association of Home Builders. "While the Midwest has shown some resilience, lower permit activity indicates builders remain cautious about future construction amid economic uncertainty and affordability pressures."

Single-family completions last month dipped 1.6% below April's revised rate of 886,000 units, while total housing completions dropped 8.1% from April.

"Builders are pulling back on building spec homes that they are afraid will not sell for full price, choosing instead to market unstarted homes as build-to-order," says Berner. "Multifamily completions weakened as well, in response to nationwide rents falling for 34 consecutive months on a year-over-year basis."

Experts agree that high interest rates, rising construction costs, and labor shortages are holding back permitting and building activity in multifamily and single-family sectors.

"These disappointing new-construction figures are a reflection of the challenges facing builders," notes Berner. "The oil shock resulting from the conflict in Iran created price pressures on building materials shipped from all over the world, which adds to the already high costs of land and labor that builders face."

At the same time, demand for new homes has been weak and new-home sales have struggled, leading builders to offer more competitive prices and buyer incentives. Berner says that developers are having their margins squeezed from both sides, which is why they are slowing down on starts and completions so starkly.

"The silver lining here is that permits did not take as much of a hit, so builders are feeling more optimistic about the future than they are the present," adds the economist.  

The latest data from the U.S. Census Bureau aligns with NAHB's June builder survey, which showed builder sentiment weakening.

"Elevated mortgage rates, affordability challenges, and cautious buyers continue to weigh on demand for new homes," says NAHB Chairman Bill Owens. "Builders are offering incentives and cutting prices, but difficult market conditions are still limiting sustained momentum for new construction."

On a regional basis, combined single-family and multifamily starts were 17.5% higher than a year ago in the Northeast, 4.1% lower in the Midwest, 1.6% lower in the South, and 4.9% lower in the West.

Meanwhile, permits were up 10% year over year in the Northeast, 2.4% higher in the Midwest, down 6.7% in the South, and up 0.1% in the West.