U.S. Housing Starts Declined in May

WASHINGTON—A gauge of U.S. home building declined in May, a fresh sign of weakness in the housing market.

Housing starts fell 0.9% in May from the prior month to a seasonally adjusted annual rate of 1.269 million, the Commerce Department said Tuesday. That was a steeper decline than the 0.4% decrease economists had expected.

The report follows a drop in U.S. home-builder confidence in June, as builders reported concerns over rising construction costs and trade issues. The National Association of Home Builders housing market index fell to 64 this month from 66 in May, the trade group said Monday.

Tuesday’s housing data, “along with a constellation of other economic factors, could weigh on the Federal Reserve’s scales regarding whether or not they will cut rates, which would potentially provide some stimulus for the economy and the housing market,” said John Pataky, executive vice president at TIAA Bank.

Fed officials meet Tuesday and Wednesday in Washington, and are expected to deliberate whether to lower interest rates should the economic outlook darken.

There were some bright spots in the Commerce Department’s latest release. Residential building permits, which can signal how much construction is in the pipeline, rose 0.3% from April to an annual pace of 1.294 million. That was the strongest monthly rate of growth since December. The pace of starts in April was revised higher, another positive sign.

Housing-starts data are volatile from month to month and can be subject to large revisions. May’s 0.9% drop in starts came with a margin of error of 12.9 percentage points.

Home construction has been cooling more broadly as the overall housing sector has struggled with high prices and low inventory, even with a strong labor market and rising incomes. Starts were down 4.7% from May last year.

Borrowing costs have fallen in recent weeks, which could help the selling season this summer. A 30-year fixed-rate mortgage averaged 3.82% for the week ended Thursday, according to Freddie Mac, near historic lows and down from 4.62% a year ago. The National Association of Realtors will release existing-home sales data for May on Friday.

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