WASHINGTON — US single-family homebuilding increased in May, but a sharp drop in permits for future construction pointed to subdued housing market conditions amid headwinds from tariffs and excess inventory of unsold homes.
Single-family housing starts, which account for the bulk of homebuilding, rose 0.4 percent to a seasonally adjusted annual rate of 924,000 units last month, the Commerce Department’s Census Bureau said on June 18.
President Donald Trump’s import duties, including on lumber, aluminum and steel are raising construction costs for builders.
The tariffs have heightened uncertainty over the economy, which the Federal Reserve has responded to by pausing its interest rate cutting cycle. The US central bank is later on Wednesday expected to leave its benchmark overnight interest rate in the 4.25 percent-4.50 percent range, where it has been since December.
Higher borrowing costs have sidelined potential buyers, boosting the supply of new single-family homes on the market to levels last seen in late 2007.
A National Association of Home Builders survey on Tuesday showed sentiment among single-family homebuilders plummeted to a 2-1/2-year low in June.
The NAHB reported an increase in the share of builders cutting prices to lure buyers, and forecast a decline in single-family starts this year.
Permits for future construction of single-family housing dropped 2.7 percent to a rate of 898,000 units in May.
Residential investment, which includes homebuilding, contracted slightly in the first quarter after rebounding in 2024 following steep declines in the prior two years caused by a surge in mortgage rates.
“We appear on course for a substantial decline in real activity in the current quarter and perhaps further weakness in the summer,” said Stephen Stanley, chief US economist at Santander US Capital Markets.
Meanwhile, US existing home sales unexpectedly increased in May, but the trend remained weak amid high mortgage rates.
Home sales climbed 0.8 percent last month to a seasonally adjusted annual rate of 4.03 million units, the National Association of Realtors said on June 23. Economists polled by Reuters had forecast home resales falling to a rate of 3.95 million units.
The sales pace was the slowest for the month of May since 2009.
Sales fell 0.7 percent on a year-over-year basis in May.
“The relatively subdued sales are largely due to persistently high mortgage rates,” said Lawrence Yun, the NAR’s chief economist. “If mortgage rates decrease in the second half of this year, expect home sales across the country to increase.”
The average rate on the popular 30-year fixed-rate mortgage has hovered just under 7 percent this year.
President Donald Trump’s aggressive tariffs on imported goods have heightened uncertainty over the economy, which the Federal Reserve has responded to by pausing its interest rate cutting cycle.
The US central bank last week kept its benchmark overnight interest rate in the 4.25 percent-4.50 percent range, where it has been since December. Fed Chair Jerome Powell told reporters he expected “meaningful” inflation ahead due to the import duties.
A National Association of Home Builders survey on Tuesday showed sentiment among single-family homebuilders plummeted to a 2-1/2-year low in June. The NAHB reported an increase in the share of builders cutting prices to lure buyers, and forecast a decline in single-family starts this year.
Residential investment, which includes homebuilding and home sales, contracted slightly in the first quarter after rebounding in 2024 following steep declines in the prior two years caused by a surge in mortgage rates.
The inventory of existing homes increased 6.2 percent to 1.54 million units in May. Supply surged 20.3 percent from a year ago.
The median existing home price rose 1.3 percent from a year earlier to $422,800 in May, an all-time high for the month.
At May’s sales pace, it would take 4.6 months to exhaust the current inventory of existing homes, up from 3.8 months a year ago. A four-to-seven-month supply is viewed as a healthy balance between supply and demand.
Properties typically stayed on the market for 27 days last month compared to 24 days a year ago.
First-time buyers accounted for 30 percent of sales, down from 31 percent a year ago. Economists and realtors say a 40 percent share is needed for a robust housing market. All-cash sales constituted 27 percent of transactions, down from 28 percent a year ago. Distressed sales, including foreclosures, made up 3 percent of transactions, up fro m 2 percent a year ago.
