Core Insights - The U.S. residential construction activity has dropped to its lowest level since the pandemic began, influenced by high inventory of unsold homes and rising mortgage rates [1] - New housing starts fell by 9.8% month-over-month in May, with an annualized rate of 1.26 million units, below economists' expectations of 1.35 million units [1] - The construction of multi-family homes has decreased nearly 30% from its peak in 2023, while single-family home starts slightly increased to 924,000 units but remain low for the year [1] Construction Permits - The issuance of building permits in May fell to an annualized rate of 1.39 million units, reaching a five-year low, with single-family home permits at their lowest level since April 2023 [2] Mortgage Rates and Builder Confidence - The 30-year fixed mortgage rate remained high at 6.84%, contributing to a decline in builder confidence, which has hit its lowest point since 2022 [3] - The percentage of builders implementing price cuts has risen to 37%, the highest level since 2022, indicating increased pressure on margins [3] Regional Analysis - In the South, the largest residential construction market, housing starts decreased by 10.5%, with similar declines in the Midwest, while the Northeast saw a significant drop due to a decline in multi-family construction [4] - The West region was the only area to experience growth in housing starts [4] Market Dynamics - Builders are increasing marketing expenditures to attract customers, leading to shrinking profit margins [4] - Developers are offering mortgage rate subsidies, but consumer expectations for discounts continue to rise [4] - The National Association of Home Builders anticipates that single-family home starts will continue to decline as developers slow project progress to manage inventory [4]