US housing starts in May reached 1.256 million, falling short of the anticipated 1.357 million. This is the lowest level since 2020, reflecting a 9.8% drop from April’s revised figure of 1.361 million. Building permits also fell short, coming in at 1.393 million compared to the expected 1.428 million and down from last month’s 1.412 million. Even with the lowest US mortgage rates since April, demand for mortgages remains flat. The housing market is facing difficulties, despite some movement in the stock markets. Lennar’s stock has nearly halved since July, a time when there was optimistic talk about potential interest rate cuts from the Federal Reserve. The NAHB home builder sentiment index this week ranks as the third-lowest since the financial crisis, indicating that the housing market outlook isn’t improving soon. The numbers tell a clear story: housing supply growth has slowed significantly. Both housing starts and permits falling below estimates highlight this trend. Builders are clearly slowing down. This isn’t just a temporary stop; it marks a continued decline that began months ago, shaped by uncertainty regarding future borrowing costs and consumer confidence. We shouldn’t overlook that housing starts are back to levels last seen during a global shutdown, which is notable. Even with slightly better borrowing conditions and mortgage rates hitting lows since April, demand hasn’t revived. This signifies that the usual response of buyers flocking in due to lower rates isn’t happening. Traders reacted quietly, but Lennar’s stock dip by nearly half since July shows a broader concern. Once, there was growing optimism around interest rate cuts and expectations for a housing recovery, especially among homebuilders. Now, that optimism has reversed. This decline reflects a broader reevaluation of growth expectations in real estate. Builders themselves are signaling their outlook. This week’s sentiment gauge, just above its post-2008 lows, carries important implications. New projects will likely stay limited, and builder confidence has plateaued. While materials might be available and labor is somewhat stable, there’s a lack of belief that homes can be built and sold profitably in the near future. This hesitation impacts future demand for lumber, copper, and other construction-related materials. This trend isn’t confined to housing. The data adds to a growing picture of weaker signals in the real economy. If housing—a traditional leader in economic cycles—is retreating, we must reconsider where outdated assumptions might still linger. Fixed income markets have already accounted for some of this slowdown, but more leveraged strategies are starting to show underperformance where volume expectations were too optimistic about recovery. In terms of positioning, keeping exposure tight on duration may be the best approach for now. The moderation in rate volatility hasn’t eliminated the sensitivity that emerges during weaker economic reports like this one. Moving forward, adopting a patient strategy and gradually adjusting risk seems wiser than chasing any immediate shift in macro trends that are still finding their footing.

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