The new report showed housing starts declining 14.4% in May on a seasonally adjusted basis to a rate of 1.55 million. However, it included the important caveat that April’s estimate was revised upward by about 6%. “Considering the April revision, second quarter construction is trending slightly above our expectations, and with permits at a seasonally adjusted annualized rate of 1.70 million in May, down 7% from the upwardly revised April figure, we believe construction is clearly slowing but not free-falling.”

Duncan points to the 9.1% jump in completions as a bright spot, but notes that a significant portion of the completions came from buildings with 5-plus units. “Still, this could be a sign that construction backlogs due to labor and materials shortages may finally be easing. Though significantly higher mortgage rates will undoubtedly weigh heavily on affordability and demand, continued above-normal profit margins reported by many builders suggests that they will likely have room going forward to increase incentives and make price concessions to sustain sales.”

He says that while this report is consistent with Fannie Mae’s view that residential construction will continue to slow, “the near-term pace may demonstrate greater resilience, even in the face of rising mortgage rates.”