Builders Falter Under High Costs as Housing Starts Fall to Pandemic Levels

There’s no relief in the pipeline for a housing market that needs more properties for sale.

Housing starts came in at an annual pace of 1.26 million in May, according to data released Wednesday by the Census Bureau. The measure of homes being built fell nearly 10% from the prior month to the slowest since the pandemic slowed construction in 2020. The drop in housing starts surprised economists who were expecting less of a decline.

“The overarching issue is the United States desperately needs more housing, especially for first-time buyers, and that’s not going to happen with this tepid level of new home construction,”  said Heather Long, chief economist at Navy Federal Credit Union.

Long estimated that builders needed to construct 2 million new homes a year, significantly more than their current pace.

Homebuilders Facing Tariff Headwinds

Additional costs from tariffs on metals and lumber are likely affecting builders’ decisions to slow construction.

“Homebuilding continues to face heavy headwinds amid high input prices, elevated borrowing costs, increasing inventory, and tariffs now also adding to the mix,” wrote BMO Senior Economist Priscilla Thiagamoorthy.

Homebuilders reported slumping sentiment about the housing market’s future earlier this week, giving economists little hope that a housing market recovery is coming anytime soon.

“Overall, the figures suggest residential construction will remain under pressure for some time,”  Thiagamoorthy said.