Key Takeaways:
May housing starts and building permits data due at 8:30 a.m. ET will test whether the US housing market is stabilizing after months of elevated mortgage rates pushed homebuilder confidence to a two-year low.
US housing starts likely fell 2.4% in May to a 1.43 million annualized rate, economists forecast, as persistent mortgage rates above 7% continue to weigh on homebuilder activity and residential construction.
"Builders are pulling back on new projects because borrowing costs remain elevated and buyer traffic has softened," said James Okafor, macro analyst at Edgen. "The May data will show whether the spring selling season failed to deliver its usual lift."
Building permits, a proxy for future construction, are expected to edge down 0.2% to 1.42 million annualized, according to consensus estimates. Single-family starts, which account for the bulk of residential construction, have averaged roughly 1.0 million over the past three months, while multifamily starts have drifted lower as tighter lending conditions slow new apartment projects. The National Association of Home Builders sentiment index fell to 45 in May, its lowest since early 2024, signaling that builder confidence remains in contraction territory.
The housing data arrives alongside the May import and export price indices, offering a dual read on domestic demand and trade-driven inflation. A sharper-than-expected decline in housing starts could reinforce expectations that the Federal Reserve will have room to cut rates later this year, while a resilient reading would support the higher-for-longer narrative. Fed funds futures currently price a 63% probability of a rate cut by September, according to CME data.
The housing market has been caught between two opposing forces: a structural shortage of existing homes for sale that keeps prices elevated, and mortgage rates that have made new construction the primary source of supply. The 30-year fixed mortgage rate averaged 7.09% in May, down from 7.22% in April but still more than double the pandemic-era lows of 2021, according to Freddie Mac data. That dynamic has squeezed affordability for first-time buyers and pushed the median new-home price to $433,500 in April, up 3.8% year-over-year.
Import and export prices offer an inflation cross-check
The import price index is forecast to show a modest monthly increase, reflecting higher costs for industrial supplies and capital goods. Export prices, meanwhile, will provide a window into foreign demand for US-produced goods. Together with the housing data, the releases give the Fed a more complete picture of the economy ahead of its June 17-18 meeting, where policymakers are widely expected to hold the federal funds rate at 5.25% to 5.50% for the seventh consecutive meeting.
The last time housing starts fell below the 1.4 million threshold was in November 2023, when the annualized rate dropped to 1.37 million as mortgage rates briefly touched 8%. In the three months following that trough, the S&P 500 gained 11% and the 10-year Treasury yield fell 45 basis points as markets priced in a pivot. A repeat of that pattern would hinge on whether the May data confirms a softening trend or proves to be a one-month blip.
This article is for informational purposes only and does not constitute investment advice.
