The homebuilders have spoken. And they don’t like what they see.
The New Residential Construction Report for May shows a plunge in housing starts and permits, but a rise in completions.
Building Permits
- Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 1,393,000. This is 2.0 percent below the revised April rate of 1,422,000 and is 1.0 percent below the May 2024 rate of 1,407,000.
- Single-family authorizations in May were at a rate of 898,000; this is 2.7 percent below the revised April figure of 923,000. Authorizations of units in buildings with five units or more were at a rate of 444,000 in May.
Housing Starts
- Housing Starts Privately-owned housing starts in May were at a seasonally adjusted annual rate of 1,256,000. This is 9.8 percent below the revised April estimate of 1,392,000 and is 4.6 percent below the May 2024 rate of 1,316,000.
- Single-family housing starts in May were at a rate of 924,000; this is 0.4 percent above the revised April figure of 920,000. The May rate for units in buildings with five units or more was 316,000.
Housing Completions
- Housing Completions Privately-owned housing completions in May were at a seasonally adjusted annual rate of 1,526,000. This is 5.4 percent above the revised April estimate of 1,448,000, but is 2.2 percent below the May 2024 rate of 1,561,000.
- Single-family housing completions in May were at a rate of 1,027,000; this is 8.1 percent above the revised April rate of 950,000. The May rate for units in buildings with five units or more was 487,000.
Change from Cycle High
- Housing starts are down 31.0 percent from the cycle high of 1.82 million in April of 2022.
- Housing permits are down 27.4 percent from the cycle high of 1.92 million in January of 2022
- Completions are down 13.0 percent from a much later peak of 1.755 million in August of 2024.
Housing Starts 1959-Present
The boom-bust nature of housing is readily apparent. It is fueled by terrible Fed policies.
Looking ahead, demographics are poor, especially immigration but also increasing supply from peak boomer cliffs.
Housing Starts Single Family vs Multi-Family
Multi-family has much longer trends than single-family.
Despite the relative strength of single-family, overall trends are down.
Understanding Current Forces
- Immigration drove a huge need for multi-family but Trump put a screeching halt to immigration needs.
- The supply of housing from retiring and dying boomers will accelerate.
- Millennials and Zoomers are having fewer kids. Affordability is a huge issue.
- Mortgage rates are still near 7.0 percent, 6.87 percent as I type.
- Tariffs on steel, aluminum, lumber, and appliances add to building costs. Tariff uncertainty adds to job loss fears.
- Deportation fears abound.
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And Trump’s tariff policies greatly exacerbate the setup.
Home ownership is becoming unaffordable in large part due to forever increasing property taxes and insurance rates. So much focus is on the house price but the mortgage payment is becoming a smaller fraction of the cost. Even a fully paid off home has a lot of monthly expenses. That’s what has changed in 50 years.
The only haven left is in the country where you can buy acres of land with very low taxes.
most crumbling empires and run of the mill banana republics tax 99% of people out of the ownership of their lands. from italia to argentina to germany………..over the centuries. there is only real one way to hedge that.
The Federal Government created money out of thin air via low interest rates and money supply–during the Covid lock down etc. This caused inflation in housing to tack on 40% to 60% in just a couple of years as individuals and institutions bought up housing as a hedge vs inflation. Throw in multi millions of immigrants demand outstripped supply. Also housing rather than a local market is now a worldwide market allowing foreign buyers to add to demand locally.
good take on what happened. r/e is local. some jurisdictions have had tons of foreign buyers for many decades. nothing new. of course the r/e taxes and insurance and maintenance will skyrocket from here, as municipal services decline. anyone who live in nyc in 70s gets what can happen. the irony of nyc coming within a cunt hair of bankruptcy was the grown ups from the french investment bank, and other wall street boys ripped up the teachers and fireman contracts…….and started again. why nyc in spite of being a fucked up place is in better shape. the rest of country both rural and city will experience this stuff as the empire crumbles from assholes running the place. of course democracy works. assholes elect assholes. hat tip assholes who voted mamala or trump or biden or obama or bush…………
could this lead to higher prices for existing homes? asking for a friend
STAGFLATION ahead. stupid meaningless wars. tariffs and price controls. violence in the empire.(70s had hundreds of domestic bombings every year, many targeted to corporations and war machine) sounds like the 70s all over again. 70s was way more violent than the 60s.
Good. They need to plunge. Housing needs to continue a controlled deceleration under the strain of higher for longer interest rates. A gradual drop in prices is better than the bottom falling out from a recession.
Very good news indeed.
I say it’s better to pull the band aid off. We’re in this never-ending housing funk precisely because they won’t let the free market work. The government is still keeping millions of foreclosures off the market, to the detriment of the younger generations.
Boomers will be passing on the current stock of homes to younger generations over the next decade and beyond at a fast clip. That may be a better way of transferring ownership than bottom falling out of the housing market because housing market correction will almost certainly trigger a painful recession. Trump understands this very well and will not let it happen on his watch. He is a real estate guy.
The price of lumber, concrete, wiring, etc. and all the trades involved would have to come down in price or there’s no incentive to build new ones.
All RE markets are local. But eventually, a national trend becomes evident.
Over the years I have added a few parcels to my farm ~ given the fact that scale is important in farming.
Last year I was negotiating on additional acreage owned by a couple that wanted to retire and they had no children to inherit their farm. Trump came along and started his tariff mayhem. I quickly realized that there would be retaliation for his stupidity. Not only did I change my planting to cover crops and soil building, I terminated my negotiations on the additional land. The couple dropped the price significantly but I am not confident that our farming community can recover from the termination of foreign buyers interest in American crops.
I am far better off building my soil than losing money on a crop that sells for less than my input costs. My Trump voting neighbors are sweating big time as corn and soybean prices stagnate or fall.
The farm is now on the open market and there are no buyers and only a few lookers. The owners may lose money on their crops. It saddens me that they are making bad decisions. Waiting for the foreclosure auction is my best alternative.
Imagine taking on debt to produce a crop that you lose money on! Many American farmers are staring at that outcome this year!
I can not rationalize further investment in cropland and an old home and infrastructure, regardless of what would have been an opportunity only a year ago.
Elections have consequences!
If I was running the EPA I’d get rid of the ridiculous mandate for ethanol in the gasoline. Leave what the farmers, ethanol plants, gasoline stations and customers do from there up to the marketplace.
Agreed on the ethanol mandate. Gasoline has more power per gallon and ethanol shortens fuel shelf life and damages cars that are stored for over six months.
thanks for sharing your expertise.
I think the opportunity you referred to was when that couple dropped their price. Those opportunities don’t come along with farm land where I live. I would love to buy my neighbour’s quarter section for a bargain but the prices just keep going up. I paid $600/acre in 2006 and now it’s $2500/acre.
Why build what most folks can’t afford (borrow) to buy.
Of course the 0.1% have no problem if they choose to buy – usually for cash.
This will change, but it will be a long long wait.
So much for “Making America Great”.
Trump brought our economy to a standstill under his management of covid. It looks like a repeat is on its way.
Why? (War, Fear, Tariff Uncertainty, Indiscriminate Deportations, Economic Uncertainty, Failure to Invest in Education or Infrastructure, Repressive Leadership.
Along with Trumps first economic crash came a flood of dollar printing and near zero percent interest ~ accompanied and followed by massive inflation.
Sell into strength ~ buy when their is blood in the streets… Wash, Rinse, Repeat!
Did ZIRP start before 2020?
The teetering REPO market did.
The REPO market cracked in September 2019.
US Spring Homebuying Season Has Its Weakest Start in Five Years
https://archive.is/ufylJ#selection-1207.0-1207.63
Much lower house prices would solve a lot of our problems. Enough said.
There was a time when the US government built beautiful homes for working-class Americans to deal with a housing crisis
https://theconversation.com/believe-it-or-not-there-was-a-time-when-the-us-government-built-beautiful-homes-for-working-class-americans-to-deal-with-a-housing-crisis-253512
As Mish wrote: “The supply of housing from retiring and dying boomers will accelerate.” This should help suppress prices (or at least price increases), although for now, old fogies will stay in the paid-off (or low mortgage rate) houses.
Boomers don’t think they’re gonna die soon.
Lets watch…
Who wants to go to a nursing home and watch Matlock and Murder…She Wrote all day?
Why, indeed.
You can watch those at home.
Out of curiosity what problems do you think it would solve?
If you mean prices for first time buyers, sure, but that would come with a cost of a lot of others being underwater on their current homes. So we’d just trade the misery from one cohort to a different one and be inundated with articles about underwater home owners instead of articles about first time buyers priced out of homes.
The first reason is more important than the second. That’s my opinion and I recognize that it isn’t a perfect solution but it will have to do.
But why are first time home buyers more important than current home owners who would be under water and lose everything / be bankrupt if/when they have to sell (not every state has non-recourse loans)?
We all know prices went crazy because of loose monetary policy and got turbo charged when the Fed gave out massive free money during Covid.
The best way to fix everything is to have housing prices remain steady for about 10 or years time while inflation continues at say the Fed target of 2%. Then after 10 years you’ll have an effective price reduction of 21-22%.
First time buyers are often in the process of forming families. I think that is a social and economic good. It enhances stability. Some people don’t think that way and prefer to keep their heads in their ledger books counting their paper wealth and believe mistakenly that it insulates them. All that paper wealth can disappear in a second if the society that supports it becomes too instable. That is why I want the young to be able to buy into the system and have skin in the game.
But how does anyone know how many first time buyers bought in the last say 5 years? Everyone of those first time buyers would be getting shafted by a 20-25% drop in home prices. I personally know quite a few from playing beer league hockey with guys in their mid / late 20s who bought in the last 5 years and are now having kids.
That’s what I meant by my original comment. If you wanted to do the ‘greater good’ for first time buyers you’d have to be sure that there would be more winners than losers (those 1st time buyers in the last 5 years). Not sure anyone has the answer to that.
Then none of us knows how many homes would be snapped up by investors if prices dropping 20-25% because suddenly the rent math looks much better so you might end up with investors crowding out first time buyers anyway.
Underwater would require a 20% drop verse the original price paid if old school lending rules were used. Since average household stays in one place longer than 10 years, prices would have to drop 20% below 2020 prices to affect the average homeowner, who might then have 5 more years to think about it.
What problem did doubling/tripling of housing prices solve?
If you keep in touch with Canada, you know the result.
Rising prices didn’t solve any problem because it wasn’t trying to solve any problem.
I’m working on appealing my property taxes as I write this.
My data clearly shows housing in my area has been going down for at least 9 months. It’s odd how the assessment value report they sent me includes 44 homes, all from 2024. There are no 2025 data to be found on the report, and they just finalized my assessment, apparently this month. 2025 shows a very obvious tend, and if you search property assessments, the links clearly show a bias towards data that’s not over 6 months old.
Property taxes have been a huge scam for a long time. Somewhere a long the way, the “valuation” was based on expected tax revenues and not market realities.
There is a huge suit in Texas about the whole thing but it’s a national problem.
https://www.youtube.com/watch?v=rLBk_at2z_8
It’s another reason to have an exit strategy, if you do the math to the logical conclusion, everyone will be house broke within a decade.
Exactly!!! Home insurance, property taxes are killing us.
And with the doubling of my home insurance, I also have the increase of deductible for hail damage going from 1500 dollars to 1% of total value of house. I am 50. In 5 years I am going to cash out of this home and live in a 55 year old apartment complex and that’ll be that. Getting way too expensive to own even a modest home like mine (285,000) in the corn belt.
The housing market has many knobs and dials and I think it is hard to project. The 1% difference in permits from May 2024 doesn’t sound like a DefCon 1 to me. My area (near Raleigh NC) is still building like crazy and, with our continued growth, is likely to continue.
An interesting phenomenon is that family size has shrunk through the generations (7 used to be pretty normal). So houses are being occupied by smaller families.
That said, yes rates are high (I think Trump calling Powell “stupid” is a great way to fix this (it’s 2025 so I guess I need to be clear that that is sarcasm)). Costs are up, but not as bad as they were a while back. I am a small real estate investor involved in one eternal renovation (bought a junker and it is taking forever) and am replacing the flooring in an existing rental (one of the few things I think I’m legally allowed to do without getting 12 permits and doing 36 inspections) … I have to say that many prices are not as bad as I expected. Maybe no definite tariff hit yet since they do seem to be going on and off. Either way, the national numbers are interesting, but for those of who choose to stay in our microcosm … local info is more relevant.
Makes sense. Rates are high, cost of building is high, compensation for 1st time homebuyers relative to housing costs is low. If you own a home and are paying less than 4% interest, why move?
Completely agree. VA Loan with 2.25%–30 year mortgage, of course with no PMI.
Much like my comment above, the small mortgage is not the problem. Local property taxes and tripling of homeowner’s insurance are the real issues, even with a sub 3% rate.