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||3.69%||3.76%|
|15 yr fixed||2.80%||2.82%|
|30 yr refi||3.69%||3.76%|
|15 yr refi||2.83%||2.83%|
Today's featured rates:
Chipotle to hold company-wide staff meeting Monday to keep E. coli away. More
The economy is better than it was, but not even President Obama is ready to declare it's booming. More
Laurie Segall sits down with Foursquare's new CEO Jeff Glueck to discuss the company's latest round of funding at a lower valuation, and their hybrid consumer/enterprise business model. More
Nonprofit JumpStart has launched a new $10M fund that will only invest in women and minority-led startups. The catch: You have to move to Ohio. More
Portland, Oregon, is often described as the last affordable cool city on the West Coast. But as more people move to the city, it's becoming increasingly unaffordable. More