US housing starts and building permits drop to four-year lows

Both housing starts and building permits in the United States dropped sharply in May to their lowest levels since mid-2020, according to data released on Thursday.

Housing starts declined 5.5% to an annualised rate of 1.277m last month, after growing by 4.1% to a revised 1.352m in April.

This was significantly under the 1.370m consensus forecast and the lowest level since July 2020, as rising mortgage rates continue to hit demand.

Building permits also fell 3.8% to 1.386m, from 1.440m, surprising economists who expected a rise to 1.450m.

"Housing starts were weaker than expected in May and softness in building permits and deteriorating homebuilder sentiment indicate that starts will continue to be depressed in the near term," said Nancy Vanden Houten, US lead economist at Oxford Economics.

"The starts data for April and May lend some downside risk to our forecast for residential investment in Q2 and our forecast for GDP. We expect recent declines in mortgage rates, which should accelerate once the Fed begins to cut rates, to support a modest gain in starts later in the year."