New Home Construction Sinks to Lowest Point Since Pandemic

The last time there was anything like a true buyer’s market in the United States, Barack Obama was still president. However, the momentum is clearly shifting toward buyers. 

On Wednesday, fresh data from the US Census Bureau showed that new housing starts declined 9.8% in May, falling below consensus expectations and slowing to the lowest levels since … May 2020, when the world was briefly frozen in anxious pandemic amber. It may well be another indicator that the market is finally tipping in buyers’ favor, as the construction industry faces multiple gale-force headwinds.

Home is Where the Start Ain’t

It’s rare, but sometimes winning can’t come without first giving up. After multiple years of a clear-cut seller’s market effectively pummeling prospective buyers into resignation, the worm is beginning to turn. The result? The housing supply seems to finally be outstripping demand. Sellers are outnumbering buyers by nearly half a million, according to a RedFin report published in May. And Wednesday’s figures from the Census Bureau all but confirm the trend: The inventory of completed houses now stands at the highest level since 2009. It proved sufficient to push housing starts down to 1.26 million on an annualized basis, significantly lower than the 1.39 million in April. And it’s probably not going to turn around anytime soon: The number of building permits issued — an indicator of construction to come — also fell to a five-year low in May.

Still, over-inventory isn’t the sole reason for the slowdown. The cost of building materials has surged amid the White House’s trade war, while a spike in immigrant deportations has intensified a construction labor shortage, Danielle Hale, chief economist at Realtor.com, told MarketWatch on Wednesday.

It’s enough to keep tipping the scales in buyers’ favor — though we’re not quite at a buyer’s paradise just yet:

• 37% of home builders reported cutting prices to boost sales in June, according to a survey released Tuesday from the National Association of Home Builders. That marks the highest proportion since at least 2022.
• However, the same report showed that builder sentiment has fallen to its lowest level since 2022 and the third-lowest level since 2012 — largely because builders don’t see a buyer’s market materializing, thanks mainly to elevated mortgage rates. (The Federal Reserve, unsurprisingly, said Wednesday that it opted to hold interest rates at current levels, though policymakers still project two rate cuts before year’s end.)

“Despite an increase in housing inventory, we are not seeing higher home sales,” Lawrence Yun, chief economist at the National Association of Realtors, said in a statement in May. “Lower mortgage rates are essential to bring home buyers back into the housing market.”

Work-Life Balance: Meanwhile, the office space market looks like the mirror image of the suddenly overstocked housing market. For the first time in 25 years, the supply of US office space is expected to contract this year, according to recent data from CBRE Research. Why? Because some 12.8 million square feet of space is on track for conversion to other uses: Much of it will go to new housing, though another 10.5 million square feet is slated for demolition this year. We’re not sure this is what Jamie Dimon meant when he demanded people return to the office, but we’ll take it!