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Housing starts dipped dramatically in May as rising inflation and increasing mortgage rates climbed, according to a data released Thursday by the U.S. Census Bureau and Department of Housing and Urban Development.

Housing starts clocked in at a seasonally adjusted annual rate of 1.549 million homes, a 14.4 percent decline from revised April levels as demand for homes wanes amid rising rates, according to the new data. The data measures how many homes began construction in May.

“Single-family home building is slowing as the impacts of higher interest rates reduce housing affordability,”  National Association of Home Builders Chairman Jerry Konter said in a statement. “Moreover, construction costs continue to rise, with residential construction materials up 19 percent from a year ago. As the market weakens due to cyclical factors, the long-term housing deficit will persist and continue to frustrate prospective renters and homebuyers.”

The number of new privately owned homes authorized by building permits was at a seasonally adjusted annual rate of 1.695 million, a 7 percent decrease from April levels, while permits for new single-family homes were at 1.048 million, an annual rate 5.5 percent below the levels seen in April.

Home completions for privately owned homes were at a seasonally adjusted annual rate of 1.465 million, which was 9.1 percent above April’s estimate and 9.3 percent above completions for May 2021, a result of increased construction activity seen in several past quarters. Single family homes were completed at an annual rate of 1.343 million, a 2.8 percent increase from the previous month’s numbers.

The slowdown in construction starts and building permits comes as interest rates shouldered the biggest hike in 28 years on Wednesday and mortgage rates climbed above 6 percent.

Cooling demand combined with inflation-induced rising construction costs is enough to slow the housing market, with homebuilder sentiment down month over month as laborers witness a slowdown in demand.

Although builders may have dialed back the pace at which they’re starting new homes, there are currently 822,000 thousand single-family homes under construction — the highest level since November 2006. Construction delays may explain why there are so many homes being built, Bill McBride wrote in his CalculatedRisk newsletter.

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