The US housing market just hit a wall. Privately-owned housing starts plummeted to a seasonally adjusted annual rate of 1,177,000 units in May, according to data released by the US Census Bureau and HUD on June 16. That’s a 15.4% nosedive from April’s revised figure of 1,392,000 units, and the weakest reading since the early days of the COVID-19 pandemic brought construction to a standstill.

To put that decline in perspective: the housing sector shed more than 200,000 units of annualized construction activity in a single month. March had clocked in at 1,502,000 units, meaning the trajectory from March to May represents a stunning deterioration in just two months.

The breakdown tells a broad story

Single-family starts fell to 882,000 units, a 1.9% decline from April. The real carnage showed up in multi-family construction. Starts for buildings with five or more units dropped to just 284,000 in May.

Building permits, often viewed as a leading indicator for future construction, also slipped. May permits came in at 1,413,000, down 0.7% from April.

April’s housing starts figure itself came with an asterisk. Revisions placed the number in a range between 1,392,000 and 1,465,000, depending on which revision you reference.

Why this is happening

Mortgage rates remain stubbornly planted above 6%. A $400,000 home at a 3% rate costs roughly $1,686 per month in principal and interest. At 6.5%, that same house runs about $2,528. Same house, same neighborhood, nearly $850 more per month.

Labor shortages continue to plague the construction industry, pushing project timelines longer and costs higher. Material expenses, while off their pandemic peaks, haven’t returned to pre-2020 levels either.