With the Federal Reserve making no clear commitment to when an interest rate cut may come, homebuilders are scaling back.

In May, privately owned housing starts fell to a seasonally adjusted rate of 1.277 million units, down 5.5% month over month and 19.3% compared to a year ago, according to data released Thursday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD).

An annualized decline of 51.7% in multifamily housing starts, which fell to a pace of 278,000 units, is largely to blame for the sizable yearly decrease in total starts. But single-family housing starts also declined to 982,000 units, a 1.7% year-over-year decrease.

Industry experts attributed the large yearly decline in multifamily starts to the already high number of apartment buildings being completed, which leading to an easing of rent price growth.

“Builders are in an ‘if you build them, they won’t come,’ market, as continued high mortgage rates keep more potential buyers out of the market,” Robert Frick, a corporate economist at Navy Federal Credit Union, said in a statement.

The number of building permits issued in May also posted monthly and yearly declines, falling to a seasonally adjusted annual rate of 1.386 million units, down 3.8% month over month and 9.5% year over year.

Again, the multifamily sector is largely to blame, as it dropped to 382,000 units, down 6.1% from April and 31.4% from a year ago. The multifamily sector’s large yearly decline was partially offset by a 3.4% annual increase in the single-family sector (to 949,000 units), but this was down 2.9% from April.

One bright spot in the report was the number of completions, which rose 1% year over year to 1.514 million units. Despite the increase, this was still down 8.4% from a month prior. The single-family (1.027 million units completed) and the multifamily sectors (479,000 units completed) each recorded similar trends, with the single-family segment posting an 8.5% monthly decrease and a 2% annual increase, while the multifamily segment was down 7.2% month over month and up 0.8% year over year.

“Builders continue to add to the inventory count. In May, single-family home completions were still roughly 1% higher than a year ago,” Orphe Divounguy, Zillow senior economist, said in a statement. “With more homes coming on the market and no equally large uptick in housing sales, total for-sale housing inventory is higher than it was a year ago.”

On a regional level, the Midwest posted the largest monthly decline in housing starts, dropping 19% to 149,000 units. The Northeast (77,000 units) and South (733,000 units) also recorded month-over-month declines of 2.5% and 8.5%, respectively. The West posted the only monthly increase, jumping 10.4% from April to 318,000 units. Year over year, all four regions recoded declines, with the Midwest posting the largest drop at 43.1% and the West reporting the smallest at 9.4%.

The decline in housing starts comes as homebuilder sentiment fell to its lowest reading since December 2023. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell two points month over month to a reading of 43 in June. This is the second consecutive month of declines.  

The report attributes the decline to “persistently high” mortgage rates that are keeping buyers on the sidelines.

“Home builders are also dealing with higher rates for construction and development loans, chronic labor shortages and a dearth of buildable lots,” NAHB Chairman Carl Harris said in a statement.

The NAHB/HMI report is based on a monthly survey of NAHB members (typically regional and local homebuilders) in which builders are asked to rate both current market conditions for new-home sales and expected conditions for the next six months, as well as the traffic of prospective new-home buyers.

Scores for each component of the homebuilder confidence survey are then used to calculate an index, with a number greater than 50 indicating that more homebuilders view conditions as favorable than not.

As builders struggled to sell homes in June, the share of builders cutting home prices rose to 29%, up from 25% in May. It was also the largest share since January 2024, when 31% of builders reported cutting prices. While more builders are cutting prices, the average price reduction remains at 6%, the same as it has been for the past year.

Overall, the usage of sales incentives was up to 61% in June, compared to 59% in May. Additionally, this is the highest share of builders using sales incentives since January 2024 (62%).

The NAHB reported that homebuilders’ gauge of current sales conditions fell three points to 48. The gauge measuring traffic of prospective buyers decreased two points to 28, while the component charting sales expectations over the next six months posted a four-point drop to 47. This is the first time all three metrics have been below 50 since December 2023.

“We are in an unusual situation because a lack of progress on reducing shelter inflation, which is currently running at a 5.4% year-over-year rate, is making it difficult for the Federal Reserve to achieve its target inflation rate of 2%,” NAHB chief economist Robert Dietz said in a statement. “The best way to bring down shelter inflation and push the overall inflation rate down to the 2% range is to increase the nation’s housing supply. A more favorable interest rate environment for construction and development loans would help to achieve this aim.”

Regionally, the three-month moving averages for the HMI fell month over month in three of the four regions, with the West dropping two points to a reading of 41, the South decreasing by three points to 46, and the Midwest losing three points for a reading of 47. The Northeast held steady from the previous month at a reading of 62.