Housing market
April housing data shows declining permits and weak single-family activity, driven by high costs, rising mortgage rates, labour shortages, and worsening builder sentiment despite modest relief measures.
U.S. housing data revealed mixed trends in the residential construction sector, pointing to a cautious outlook. Building permits—an early indicator of future construction—fell 4.7% to an annualised rate of 1.412 million, missing expectations of 1.45 million. This decline signals a potential slowdown in upcoming single-family homebuilding, driven by elevated inventory levels in key markets and persistent affordability challenges. Housing starts rose 1.6% month-over-month to 1.361 million, just under the forecasted 1.364 million, rebounding from a previously revised 10.1% drop in March. However, single-family housing starts declined by 2% from March and are down 12% year-over-year, while single-family permits dropped 5% and completions fell 8%, underscoring a broader deceleration in new home supply. Rising mortgage rates in April added pressure by increasing financing costs for both builders and buyers, while residential construction costs remain more than 40% above pre-pandemic levels. Compounding the issue, builders continue to face skilled labour shortages and ongoing uncertainty around material pricing, with 78% of them reporting recent difficulty in setting home prices. Builder sentiment deteriorated sharply in May, falling to its lowest level since December 2022—a level last seen in November 2023—reflecting broad-based pessimism about current and future sales, buyer traffic, and overall market conditions. Though a temporary 90-day agreement between the United States and China to reduce tariffs may offer modest relief on input costs, consumer confidence remains fragile, and current buyer incentives such as mortgage rate buydowns may not be enough to spur activity. In response to these headwinds, 34% of builders reported cutting home prices in May, up from 29% in April and marking the highest share since December 2023.
We expect the residential construction sector to remain weak, with no meaningful recovery likely until late in the year. Persistent affordability issues, elevated construction costs, and tight credit conditions will continue to weigh on both supply and demand.