U.S. housing starts fell sharply in May, dropping 9.8% to a seasonally adjusted annual rate of 1.26 million units, driven primarily by a steep decline in multifamily construction amid persistent economic headwinds.

The multifamily sector, which includes apartments and condominiums, saw a dramatic 29.7% decrease to an annualized pace of 332,000 units. Meanwhile, single-family housing starts remained relatively stable with a modest 0.4% increase to 924,000 units, though they remain 7.3% below May 2024 levels.

Industry leaders point to multiple challenges constraining the housing market. Nearly 40% of home builders have reduced sales prices in recent months to address affordability concerns, according to National Association of Home Builders (NAHB) Chairman Buddy Hughes. The market faces a confluence of elevated mortgage rates, higher construction costs, and broader economic uncertainty, including tariff-related pressures.

"Single-family permits and construction starts are down on a year-to-date basis for 2025 for what has been a disappointing spring housing market," said NAHB Chief Economist Robert Dietz, who forecasts that 2025 will end with declining single-family housing starts.

On a year-to-date basis, regional performance varied significantly. Combined housing starts increased 21.1% in the Northeast and 10.8% in the Midwest, while declining 6.8% in the South and 1.6% in the West.

Building permits, a forward-looking indicator, also declined 2% to 1.39 million units in May, with single-family permits down 2.7% and multifamily permits falling 0.8%. The data suggests continued weakness ahead as builders navigate challenging market conditions and buyer hesitancy driven by affordability constraints.