High inventory and high interest rates are weighing heavily on the US new home construction, which has fallen to a five-year low.

Due to the high inventory of homes for sale and the continuous increase in mortgage rates, residential construction activity in the United States fell to its lowest level since the outbreak of the epidemic in May. Government data released on Wednesday showed that new home construction in May fell by 9.8% compared to the previous month, equivalent to an annual rate of 1.26 million units after seasonal adjustment. This data is lower than the median expectation of economists of 1.35 million units. The construction of multi-family homes dropped nearly 30% from its peak in 2023; the construction of single-family homes slightly increased to 924,000 units (annual rate), but still remains in the low range since 2023; and completed residential units increased against the trend by 8% to 1.03 million units. Analysts pointed out that residential construction activity remains depressed, and builders are facing multiple challenges: existing home inventory has reached its peak since 2009, continuous years of rising house prices combined with high financing costs are suppressing market demand, forcing developers to increase promotional efforts. "The fact that new home construction is lower than completions means that the number of houses under construction will continue to decrease. That's the core issue," said Neil Dutta, Director of Economic Research at Renaissance Macro, in a report. "In the next few quarters, residential investment will drag down economic growth." Most economists believe that residential construction activity may not provide support for economic growth this year. The Atlanta Fed's GDPNow model predicted before the release of May's construction data that residential construction might drag down second-quarter GDP performance. Building Permits The annualized rate of building permits issued in May fell to 1.39 million units, also reaching a five-year low. Among them, the construction permits for single-family homes fell to the lowest level since April 2023. The latest data from the Mortgage Bankers Association of America shows that the 30-year fixed mortgage rate remained at a high of 6.84% last week. Furthermore, the current builder confidence index has fallen to its lowest level since 2022. On the one hand, businesses are facing differentiated demand, and on the other hand, the Trump administration's tariff policies are exacerbating the risk of rising costs for imported building materials. Data from the National Association of Home Builders shows that the proportion of builders implementing price cuts in June rose to 37%, the highest level since 2022. The new home construction report also shows that the number of single-family homes under construction has continued to decline from the peak in 2022. Regionally, the largest residential construction market in the United States, the South, saw a 10.5% decline in housing starts, with similar declines in the Midwest. The Northeast saw a sharp decline due to the contraction of multi-family home construction, while the Western region saw growth. Analyst Alex Barron from the Housing Research Center pointed out that builders are continuously increasing marketing spending to attract customers, leading to a continuous narrowing of profit margins. In addition to direct price cuts, developers are widely offering mortgage rate subsidies, but consumers' expectations for the extent of discounts are still rising. The National Association of Home Builders predicts that as developers slow down project progress to absorb inventory, the construction of single-family homes will continue to decline this year. Since reaching its peak in 2022, new home prices have entered a downward trend under the promotional strategies of developers. It is worth noting that new residential construction data is subject to significant fluctuations. The government report shows that the 90% confidence interval for monthly declines is between 0.5% and 19.1%.