US housing starts grew less than expected in May as construction bottlenecks stifled raging demand

• US housing starts grew 3.6% in May to an annualized rate of 1.57 million, the Census Bureau said.
• Economists expected a 3.9% jump. The April reading was also revised lower to indicate starts dropped 12.1% that month.
• Builders are struggling to shore up home supply as demand remains elevated and construction costs soar.
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New home construction bounced back in May, but still missed economist forecasts as supply-chain issues kept contractors from servicing unprecedented demand.

Housing starts rose 3.6% to an annualized rate of 1.57 million in May, the Census Bureau said Wednesday. Economists surveyed by Bloomberg held a median estimate for a 3.9% jump.

April's rate was revised lower to 1.52 million, implying a 12.1% slide through the month.

Building permits – which serve as a more forward-looking indicator of residential construction – fell 3% to an annualized rate of 1.68 million. That's the lowest level since October.

Separately, the number of one-family homes authorized but not yet started climbed to 142,000 last month, the highest since 2006. The gauge is often used as a measure of backlogs in the nation's housing market.

The May report signals that, while home construction is picking up, the rebound is far from alleviating pressure in the red-hot housing market. Massive demand throughout the pandemic saw sales rates skyrocket and drag inventories to record lows. The imbalance between supply and demand has since led prices to surge and exacerbate affordability risks already lingering throughout the market.

Starts will fail to break out and instead waver near current levels for the rest of 2021, Nancy Vanden Houten, lead economist at Oxford Economics, said.

"Strong demand, a need for inventory, and homebuilder optimism will keep a floor under activity, but builders continue to face supply constraints that may hamper or at least postpone construction," she added.

Builders have tried to shore up home supply, but their efforts have recently run up against severe bottlenecks. Lumber prices exploded higher in April and crept higher still in May before retracing only some of the rally. The surge helped boost the producer price index for construction materials another 4.6% higher last month after climbing 5.2% in April.

Even the lots where homes are built are in short supply. The New Home Lot Supply Index slid 10% to a record low in the first quarter of the year, housing analytics firm Zonda said in May.

For now, contractors are shifting the higher costs to buyers. Home prices in the US spiked 13.2% year-over-year in March, according to the S&P CoreLogic Case-Shiller Home Price Index. The May reading exceeded the 12.5% estimate and marked the largest one-year jump since December 2005.