US housing starts fall sharply in May, further weakness seen ahead

Homebuilding activity in the US undershot economists' forecasts by a wide margin last month.

According to the US Department of Commerce, housing starts fell 14.4% pace month-on-month in May to reach an annualised pace of roughly 1.55m.

Nevertheless, the lower-than-expected reading was partially offset by an upwards revision to the annualised pace of starts for April from 1.724m to 1.81m.

Single-family starts meanwhile declined by 9.2% on the month to reach 1.05m.

Building permits, which many consider to be a leading indicator for homebuilding, dropped by 7.0% in comparison to April, reaching an annualised clip of 1.695m.

Commenting on the outlook for the sector, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said that home construction was "rolling over" and had a "long way to go".

"The next few months will bring further, steep, declines in housing construction, given the collapse in mortgage demand.

"[...] Homebuilders are already carrying 9.0 months of inventory - our chart shows that they have overbuilt since early 2021, seeking to capitalize on the lack of inventory in the existing homes market - so construction has to drop in order to limit the hit to margins.

"Chair Powell yesterday said the housing market is undergoing a “reset”; it’s much more than that."