Residential construction in the United States plunged in May to its lowest level in five years, as homebuilders struggled to navigate a landscape marked by volatile tariffs, elevated mortgage rates, and a glut of unsold homes, according to data originally reported by the Financial Times.
New figures from the U.S. Census Bureau revealed that housing starts fell 9.8% month-over-month to a seasonally adjusted annual rate of approximately 1.26 million units — the lowest since early 2020, when the COVID-19 pandemic brought much of the housing sector to a halt. The reading fell well below economists’ expectations of around 1.36 million.
Permits for new construction, a leading indicator of future building activity, also saw a sharp decline, dropping to an annualized rate of 1.38 million units in May — the weakest level since June 2020.
The downturn comes just as the Federal Reserve prepares to issue its latest interest-rate decision, with expectations that borrowing costs will remain steady. Meanwhile, former President Donald Trump has renewed criticism of Fed Chair Jay Powell for resisting calls to cut rates, blaming the central bank’s stance for stifling economic growth.
Economists cited in the Financial Times attributed the construction slowdown in part to the unpredictable nature of Trump-era trade policies, which continue to influence material costs through the imposition — and frequent reversal — of tariffs.
“Homebuilders are putting a pause on new constructions in light of continued tariff uncertainty and the difficulty they face in pricing new projects as a result,” said Selma Hepp, chief economist at property consultancy Cotality.
Market sentiment among builders has also turned negative. A recent survey by the National Association of Home Builders and Wells Fargo found that builder confidence fell to its lowest point since 2022. To move existing inventory, developers are increasingly resorting to discounts and incentives such as design upgrades and interest rate buydowns.
“Margins are being compressed,” said Ali Wolf, chief economist at construction analytics firm Zonda. “If builders want to compete, they now have to offer a lot of concessions.” Wolf added that broader consumer economic uncertainty is also dampening the appetite for new homes. “There’s a lot of doubt right now.”
Mortgage rates remain a key pressure point. The 30-year fixed mortgage rate edged down slightly to 6.84% in the week ending June 13, according to the Mortgage Bankers Association. However, rates remain elevated compared to recent history, having peaked near 8% in 2023 and not fallen below 6% since September 2022.
“Mortgage rates at current levels are causing the housing sector to contract and prices to fall,” said Andrew Hollenhorst, chief U.S. economist at Citi. “That’s one clear indication that the interest rates remain restrictive and will need to be reduced.”
As the Fed weighs its next steps, all eyes will be on Powell’s remarks for signs of a potential shift toward more accommodative monetary policy. For now, however, the U.S. housing market continues to face significant headwinds from both economic and political fronts.
