US May housing starts recorded 1.256 million, falling short of the expected 1.357 million. This is the lowest since 2020, showing a 9.8% drop from April’s revised 1.361 million. Building permits also missed expectations, reported at 1.393 million, down from 1.428 million expected and lower than the previous month’s 1.412 million.

Despite the lowest US mortgage rates since April, mortgage demand remains stagnant. The housing market faces challenges, even as stock markets show some movement. Lennar’s shares have almost halved since July, a period when there was positive sentiment regarding potential Federal Reserve interest rate cuts.

Nahb Home Builder Sentiment Index

The NAHB home builder sentiment index this week was the third-lowest since the financial crisis, suggesting no immediate improvement in the housing market outlook.

Looking at the data, there’s a clear message behind the numbers: housing supply growth has slowed, not just a little, but meaningfully, and that matters. With both housing starts and permits falling below estimates, the signal is fairly direct. Builders are hitting the brakes. It’s not about a momentary pause—it’s the continuation of a decline that began months ago, now anchored by hesitancy on future borrowing costs and consumer confidence.

We shouldn’t gloss over the point that starts are now back to levels last seen during a global shutdown. That’s telling. Even with borrowing conditions slightly better—we’ve seen mortgage rates dipping to the lowest since April—it hasn’t revived demand in any measurable way. That’s not something to dismiss. It means that the mechanism where lower rates usually pull in buyers or fuel new activity in construction, isn’t functioning as expected.

Reassessment Of Growth Assumptions

The reaction from traders was quiet, but we took note when Lennar’s shares fell by nearly half since July. When optimism around interest rate cuts was stronger, expectations were positioned for a recovery in housing, particularly in homebuilders. But that move has fully reversed. It’s not just about one company. That decline speaks to the wider reassessment we’ve had to make around growth assumptions in real estate exposure.

Builders themselves are indicating what they see ahead. The sentiment gauge this week—just a notch above its post-2008 lows—was plain in its implications. New projects will remain limited. Confidence has flattened. Materials may be available and labour somewhat more stable, but what’s lacking is conviction that homes can be built and sold profitably in coming quarters. That filters down to forward demand for lumber, copper, and everything else tied up in construction.

This isn’t limited to housing alone. The data adds to the mosaic of softer real economy signals we’ve been watching. If housing, which typically leads broader cycles, is retreating again, we must consider where excess positioning might still be based on views that feel outdated now. Fixed income has already priced in some of that moderation in activity, but in more leveraged strategies, we’ve started seeing underperformance where volume expectations had been pinned too closely to a rebound scenario.

In positioning terms, staying tight on duration exposure might remain the more sensible posture. Compression in rate volatility hasn’t yet removed the underlying sensitivity that keeps returning during weaker prints like this one. For us, the path forward looks more about patience and scaling risk gradually, rather than chasing any outright trend-change in macro signals yet to complete their turn.

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