NEW YORK (CNNMoney.com) -- The government reported Wednesday that new home construction fell sharply in May -- the first month after a homebuyer tax credit expired.
Housing starts fell 10% from April to a seasonally-adjusted annual rate of 593,000 last month, the Commerce Department said.
Economists were expecting housing starts to fall to only 655,000. On a year-over-year basis, starts rose 7.8% from May 2009.
New construction of single-family homes, the key sector of the housing market, plummeted 17.2% over the month to an annual rate of 468,000.
The annual rate for new construction of multi-family homes -- buildings with 5 or more units -- was 112,000.
April was the last month in which first-time home buyers could qualify for a federal tax credit of up to $8,000. Earlier this year lawmakers extended the deadline through April 30 and added a new credit of up to $6,500 for some existing home owners who move.
Forecasts were too optimistic given the tax credit's expiration, said Ian Shepherdson, economist at High Frequency Economics, in a research note.
"The tax credit pulled housing transactions and construction activity forward into the spring from the summer," Shepherdson said, "so the next few months will see activity remaining at a very low level."
Housing starts will probably drop "a bit further" in June, Shepherdson added, though he expects activity "to begin reviving, gradually, in the fall."
Building permits: That's likely why applications for building permits, a gauge of future construction activity, also fell sharply. Permits fell to a seasonally adjusted annual rate of 574,000 last month, down 5.9% from a revised 610,000 in April.
Economists were expecting a more modest decline to 631,000 permits. Despite this month's sharp drop, permits were up 4.4% from May 2009.
Last week, a Senate amendment was unveiled that proposes extending the tax credit deadline to Sept. 30.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||3.87%||3.93%|
|15 yr fixed||3.09%||3.12%|
|30 yr refi||3.84%||3.92%|
|15 yr refi||3.07%||3.14%|
Today's featured rates:
Walmart wants to make sure its employees who serve in the military never take a pay cut. More
President Trump's first full budget proposal lays out $4.1 trillion in spending for 2018 but reallocates where federal funds are spent. The White House estimates his budget would reduce spending over the next decade by $3.6 trillion. More
Cybersecurity firm Symantec says the world's biggest cyberattack shows strong links to Lazarus, a hacking group that has previously been tied to North Korea. More
In 1998, Ntsiki Biyela won a scholarship to study wine making. Now she's about to launch her own brand. More
A 401(k) plan is the go-to retirement savings account for most workers. But if you're employed at a company that doesn't offer a 401(k) or any other retirement plan, don't worry. There are other options. More