Expiration of a federal tax credit for buyers caused U.S. home construction in May to drop to its lowest level since December, while applications for new building permits fell 5.9 percent to their lowest level in a year.

The homebuilding industry is an important cog in the economy, generating purchases and shipments of furniture, appliances and other goods in addition to building materials.

The Commerce Department said construction of new homes and apartments fell 10 percent from a month earlier to a seasonally adjusted annual rate of 593,000. April's figure was revised downward to 659,000.

The results were driven by a 17 percent decline in the single-family market, which had benefited earlier in the year from federal tax credits of up to $8,000. It was the largest monthly drop in single-family construction since January 1991.

Applications for new building permits, a sign of future activity, fell to an annual rate of 574,000, the lowest level in a year.

The report missed Wall Street expectations by a wide margin. The consensus prediction by economists surveyed by Thomson Reuters was that housing construction would drop to a seasonally adjusted annual rate of 650,000 and that building permit applications would increase to an annual rate of 630,000.

Homebuilding got a temporary boost from the government incentives, but developers still have an oversupply of housing that is worsened by a glut of foreclosed homes. Sales also are affected by continuing high unemployment and tight mortgage credit.

The National Association of Home Builders said Tuesday its housing market index, an index of builder optimism, fell in June after two straight months of increases.

Source: JOC