The numbers: Construction started on new U.S. homes fell 14.4% in May, the Commerce Department said Thursday. The annual rate of total housing starts fell to 1.55 million last month from a revised 1.81 million in April.

The drop is the biggest decline since April 2021. Housing starts are at the lowest level since April 2020, when the economy briefly fell into a steep recession at the start of the coronavirus pandemic.

Economists polled by the Wall Street Journal expected housing starts to fall to a 1.68 million rate from April’s initial estimate of 1.72 million.

Permitting for new homes fell 7% to 1.7 million in May from a revised 1.82 in the prior month.

Economists expected building permits to fall to a 1.78 million rate from April’s initial estimate of 1.82 million.

Key details: The construction pace for single-family homes fell 9.2% in May, while apartment starts fell 26.8%.

Permits for single-family homes fell 5.5% in May, while permits in buildings with at least five units fell 10%.

Regionally, construction looked mixed. While the Northeast saw a 14.6% bump in the construction of new single-family homes, the South saw a massive decline of 20.7%. Construction of single-family homes rose modestly in the Midwest by 1.9%. In the West, that number dropped by 17.8%.

The pace of permits for new homes on the other hand dropped across the country, and was felt most sharply in the Northeast, which saw a 20.2% decline in single-family homes.

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Big picture: The trend in single family starts is downward, said Richard Moody, chief economist at Regions Financial, as higher mortgage interest rates will likely slow demand.

And expect this trend to persist through the year, Oxford Economics’ Nancy Vanden Houten said.

“We expect housing starts to lose some momentum as 2022 progresses, as a sharp rise in mortgage rates sidelines some buyers and as builders have become more cautious,” she wrote in a note on Thursday. “We think a shortage of supply and a record backlog of starts will keep activity from plummeting, but the May data indicate the risk to our forecast is to the downside.”

Market reaction: Stocks opened sharply lower on Thursday in the wake of the Federal Reserve’s large interest-rate hike.

The yield on the 10-year Treasury note rose to 3.47% in the wake of the Federal Reserve’s interest rate hike.

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