U.S. Housing Starts Dip Sharply as Builders Face Cost Pressures and Weak Demand

New residential construction projects in the U.S. dropped notably in May as homebuilders scaled back activity due to weakening demand, rising input costs, and uncertainty over tariffs. The latest data from the U.S. Census Bureau reveals that new housing starts fell to a seasonally adjusted annual rate of 1,256,000, a 9.8% decline from April and a 4.6% drop year-over-year.

Single-family starts remained relatively flat, showing a modest 0.4% uptick from April, but other segments of the market contributed to the overall downturn.

Permits for new housing, a forward-looking indicator of builder confidence, also dropped. May saw 1,393,000 permits issued, marking a 1% decline from the same time last year and 2% down from April. Single-family permits dropped even more sharply, down 6.4% year-over-year and 2.7% from the previous month.

While new home completions reached 1,526,000, a positive number at face value, that still represented a 5.4% drop from April and 2.2% below last May. One bright spot: single-family completions increased by 8.1% over the previous month, totaling 1,027,000.

"New residential construction activity continued to fall in May with both permits and starts dropping to 5-year lows," said Danielle Hale, Chief Economist at Realtor.com, in a statement. "This underscores the effects of the current trade war on homebuilding augmented by worsening labor shortages and growing concern from builders about housing demand."

Builders Cautious Amid Cooling Market

Behind the numbers lies a cautious industry. Builders are confronting multiple headwinds: high mortgage rates, buyer hesitation, labor shortages, and the rising cost of materials due to tariffs imposed during the Trump administration.

Lisa Sturtevant, Chief Economist for Bright MLS, emphasized the shift in buyer behavior:
"Homebuyer traffic has slowed amidst economic uncertainty and persistently high mortgage rates, and more builders are cutting home prices to entice would-be buyers," she said.
"With the inventory of existing homes available for sale increasing, prices of those homes have stabilized or have even started to decline in some markets. As a result, home buyers have more options," Sturtevant added.

Buyers, still grappling with high borrowing costs, are showing less urgency despite a surge in available homes. A recent Redfin report estimated that sellers now outnumber buyers by 500,000, leaving many listings to linger unless significantly discounted.

Tariffs and Material Costs Weigh Heavy

Compounding the slowdown is a spike in material costs linked to tariffs. The Producer Price Index showed that construction input prices rose by 0.2% in May from the month before and 1.3% year-over-year, driven by surging costs for iron, steel, copper, and aluminum.

Those materials are foundational to most residential construction projects, and any cost spikes directly impact a builder's profit margins. In an environment where home prices are already high and sales are slowing, builders are less willing to gamble on new starts that might sit unsold.

While the housing market remains active in some regions, the national slowdown is unmistakable. Industry experts say builders will likely remain cautious through the summer, waiting for signs of stabilizing interest rates, input costs, and buyer demand.

Let me know if you’d like this in infographic format or paired with regional breakdowns of construction activity.

Originally reported by Giulia Carbonaro in News Week.