New Home Construction Slows as Mortgage Rates Remain High

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Construction of new homes in the United States dropped below expectations in May as builders pull back on new residential projects largely in response to high interest rates, reinforcing concerns about stubbornly high housing prices. Government data released on Thursday showed that new-home construction, or housing starts, fell 5.5 percent last month to an annualized rate of 1.28 million, a sign of more cracks in the already shaky housing market. Slower construction of both single-family and multifamily homes contributed to the overall drop. Building permits dipped 3.8 percent, pointing to less future construction. This downturn in home building comes as the average rate on 30-year mortgages, the nation’s most popular home loan, has reached highs not seen in decades, though the rate dipped slightly this week to 6.87 percent, Freddie Mac reported on Thursday. The magnitude of the decrease in construction last month underscores that high interest rates are both weakening housing demand and raising costs for builders — two dynamics that are ultimately contributing to builders’ reluctance to start projects. Home builder sentiment dropped in May to its lowest level this year before falling even further this month, suggesting relatively tepid home construction data in the coming months, Daniel Vielhaber, an economist at Nationwide, said in a statement.