The market sentiment for single-family homes dropped sharply in May as the mortgage rate shot up and construction material prices rose.

According to the National Association of Home Builders/Wells Fargo Housing Market Index Index, Sentiment dropped by an astounding 8 points to reach 69 in May. Positive readings are above 50, however this month’s builder sentiment is down for the fifth consecutive month.

This is the lowest level since June 2020 when builders experienced a quick, negative reaction to the onset of the Covid pandemic, but then quickly rebounded. Single-family homes that have outdoor spaces in the suburbs soared after the economic downturn. In November 2020, builders sentiment reached a new record of 90.

This month’s reading excludes the pandemic effect. It is the lowest monthly total since September 2019, when U.S.-China trade disputes had a devastating impact on the supply chain of building materials.

NAHB chairman Jerry Konter said that “Housing is leading the business cycle” and noted that there are slowing housing developments in Savannah, Georgia.

Out of the three component components of the index, sales conditions are down 8 points at 78 and sales forecasts for the next six month drop 10 points at 63. Buyer traffic declined 9 points, to 52.

According to Mortgage News Daily, buyers in April witnessed the average 30-year fixed rate jump from 4.88% up to 5.41%. Then it hit an all-time high of 5.94% in the first week in May. At 3.29%, this rate began in 2011. Builders also saw the impact inflation had on their prices.

Robert Dietz, chief economist at NAHB, stated that the housing market faces growing difficulties. The cost of building materials has risen by 19% over a year; mortgage rates are at a twelve-year high in three months. According to current affordability, less that 50% of home sales can be afforded for the average family.

Rising rates are affecting entry-level buyers the most, however there is a drop in demand across all income levels. Surveys show that cancellation rates are rising for new construction.

Ivy Zelman, a housing analyst said that they are at an “inflection point”. This was in an interview she did on Monday’s CNBC’s closing bell.

Zelman stated that there was a rise in cancellations rates as a result of Zelman’s survey. There was a rise in incentives and cancellations from certain hotter markets.

According to a regional moving average of three months, Northeast builder sentiment was stable at 72. It fell 7 points in the Midwest to 62 and 2 points in the South to 80. The West saw sentiment drop 6 points to 83.