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||4.23%||4.19%|
|15 yr fixed||3.26%||3.27%|
|30 yr refi||4.22%||4.18%|
|15 yr refi||3.26%||3.26%|
Today's featured rates:
Law enforcement officials say Frank Tamayo was the middleman in a $5.6 million insider trading scheme that involved him eating pieces of paper to cover up the crime. More
Scotland's clear rejection of independence has eased fears that it could suffer the kind of decline seen in Quebec after it failed to break away from Canada. More
As Occupy Wall Street goes on its debt-abolishing tear, thousands of people across the country are begging them to forgive their loans. More