Housing starts fell more than expected in May to their lowest level in five months, a government report showed on Wednesday, as a popular homebuyer tax credit that had buoyed construction activity over the past two months expired.
The Commerce Department said housing starts dropped 10 percent to a seasonally adjusted annual rate of 593,000 units, the lowest level since December. The percentage decline was the biggest in 14 months. April's housing starts were revised down to show a 3.9 percent increase, which was previously reported as a 5.8 percent rise.
Analysts polled by Reuters had expected housing starts to fall to 650,000 units. Compared to May last year, starts were up 7.8 percent.
New building permits, which give a sense of future home construction, dropped 5.9 percent to a 574,000-unit pace in May, the lowest in a year. That followed a 10.9 percent drop in April and compared to analysts' forecasts for a rise to 630,000 units.
Housing starts rose in March and April as new home construction was pushed forward to take advantage of a government tax credit for home buyers. Buyers had to sign contracts by April 30 to qualify for the tax credit.
In the wake of the end the tax credit, home builder sentiment fell sharply in June. Analysts, however, believe the pullback in housing will be temporary, citing the gradual improvement in the economy. Demand for loans to buy homes rebounded from 13-year lows last week.
Groundbreaking for single-family homes tumbled 17.2 percent to an annual rate of 468,000 units in May after a 5.6 percent increase in April. The percentage decline in May was the largest since January 1991 and snapped four months of gains. However, starts for the volatile multifamily segment surged 33 percent to a 125,000-unit annual pace.
Home completions fell 7.4 percent to a 687,000-unit pace. The inventory of total houses under construction fell 2.3 percent to a record low 475,000 units in May, while the total number of units authorized but not yet started dropped 4 percent to 91,200 units, the lowest since November.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)