Construction of new US homes fell 5.5% in May, the lowest level in four years as builders pulled back on new projects. The pace of construction hit a speed bump as builders grappled with higher-than-normal financing costs as well as elevated mortgage rates that affect home buyers.

Housing starts fell to a 1.28 million annual pace from 1.35 million in April, the government reported. The data fell short of Wall Street’s expectations of 1.38 million houses.

Housing starts fell in May to the lowest level since June 2020, during the depths of the COVID-19 pandemic. Both single-family and multi-family starts posted a decline across most of the nation.

Builders appear despondent, saying they are feeling the effects of the high costs of loans, which has dissuaded buyers from taking on expensive mortgages and has made capital for construction expensive. In June, builder confidence, as measured by the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index, fell to its lowest reading since December.

Carl Harris, NAHB's chair said "Persistently high mortgage rates are keeping many prospective buyers on the sidelines. Home builders are also dealing with higher rates for construction and development loans, chronic labour shortages and a dearth of buildable lots."

Housing starts rise to seven-month high in Canada

Canada’s housing starts jumped to the highest level in seven months as the country’s two largest provinces increased investment in construction on apartments, townhouses and condominiums.

Builders started work on an annualised 264,506 units in May according to data released by the Canada Mortgage and Housing Corp., an increase of 9.7% from a month earlier.

Ontario and Quebec, the country’s most populous provinces, led the increase in starts, rising 18% and 67% respectively. Housing starts fell 16% in British Columbia, Canada’s westernmost province. The number of singledetached homes on which construction started during the month was little changed, meaning the gains were concentrated in multiple-unit builds.

The Canadian government has announced billions in new loans and tax breaks intended to encourage construction as housing affordability has worsened. The country’s chronic shortage of homes has been further aggravated by an influx of temporary residents that has driven population growth to one of the highest levels in developed countries.

CMHC estimates Canada needs to build at least 3.5 million additional housing units by 2030 to restore affordability.