Apartment Construction Plunged 40% In May

Apartments were supposed to be the cheap option, but in May, builders broke ground on 40% fewer of them than the month before.

That single drop pulled total U.S. housing starts to their slowest pace in six years, hitting a market already squeezed by stretched affordability and high mortgage rates.

Housing Starts Hit Six-Year Low

Housing starts fell 15.4% in May to an annualized rate of 1.18 million homes. That's the weakest reading since 2020, and it missed every estimate in a Bloomberg survey of economists.

Multifamily starts - meaning apartment buildings and other rentals - dropped 40.2%, while single-family starts fell 1.9% to 882,000.

Apartment construction had been one of the housing market's bright spots for the last two years, with builders racing to add supply as rents climbed.

The pullback wasn't isolated to one type either - every region saw construction fall except the Midwest, with the South - the biggest homebuilding region in the U.S. - hitting its lowest level since May 2020.

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Why Builders Are Pulling Back

Demand for new homes is sluggish because mortgage rates remain high enough to lock most first-time buyers out. That's left builders sitting on a backlog of finished homes, with carrying costs piling up the longer those units stay unsold.

To move that supply, builders have been cutting prices and paying down buyers' mortgage rates. They've also pulled back on "spec homes" - houses built without a buyer already signed up - because nobody wants to be left holding the bag.

Buyer incentives like rate buydowns are now standard across most major homebuilders, eating into margins on every sale.

Hopes for a Fed rate cut this year have faded too. Stickier-than-expected inflation has pushed those expectations further out.

That keeps mortgage rates higher for longer, which keeps buyers on the sidelines, which keeps builders cautious.

Samuel Tombs at Pantheon Macroeconomics called the May drop "unalarming" given how choppy these numbers can be. But his bigger point was harder to brush off: a real recovery in homebuilding is still a long way off.

What To Watch

Building permits - the best signal for what gets built next - fell 0.7% in May to an annualized rate of 1.41 million, though permits for single-family homes ticked up slightly.

President Trump has been pressing builders publicly, blasting what he says are 2 million empty lots being held off the market. Meanwhile, legislation to block big investment firms from buying single-family rentals is moving through Congress, though it's been watered down from the original version.

The next read comes Wednesday, when the National Association of Realtors releases pending home sales for May.

That report will show whether buyer demand stabilized as the spring season ended.

Permits already suggest the answer will be no.

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