Implications:  May was a tough month for homebuilders, as both housing starts and new permits fell to the slowest pace since the COVID shutdowns.  However, the details were not quite as bad as the headline.  First, the decline in starts in May was entirely due to a 29.7% drop in the volatile multi-family category, easily offsetting the 0.4% increase for single-family starts.  The other silver lining is that homebuilders continued focusing on completing projects in May, with completions increasing 5.4% to a 1.526 million annual rate.  That marks the eleventh month in the last twelve with completions running above a 1.5 million pace.  The same cannot be said for starts and permits, which have been stuck in low gear since the Federal Reserve began tightening monetary policy back in 2022, and hover around levels reminiscent of 2019.  Looking at the big picture, builders face a number of headwinds: high home prices and mortgage rates that are no longer being held artificially low, the largest completed single-family home inventory since 2009, restrictive government regulations, and relatively low unemployment which makes it hard to find workers. Now, builders must also contend with much tougher immigration enforcement and the uncertainty of new tariffs and how they’ll affect building costs. This weighs heavily on the NAHB Index (a measure of homebuilder sentiment) which fell to the lowest level since the end of 2022 in May at 32.  Keep in mind a reading below 50 signals a greater number of builders view conditions as poor versus good, now the fourteenth consecutive month that has been the case.  Meanwhile, the total number of homes under construction continues to fall, down 13.7% in the past year.  In the past, like in the early 1990s and mid-2000s, this type of decline was associated with a housing bust and falling home prices.  But this time really is different.  With the brief exception of COVID, the US has consistently started too few homes almost every year since 2007.  So, while multiple headwinds may hold back housing starts, a lack of supply is lifting home prices.  In some high-flying areas prices are moderating, but national average home prices will likely continue higher.  In other news this morning, initial jobless claims declined 5,000 last week at 245,000, while continuing claims fell 6,000 to 1.945 million.  These figures are consistent with continued job growth in June, but at a slower pace than last year.

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