By Lucia Mutikani

WASHINGTON, (Reuters) – Permits for U.S. future homebuilding fell to a five month low in April. This suggests that the US housing market is slowing down as rising mortgage rates make it more difficult for first-time and entry-level buyers to afford.

The Commerce Department’s Wednesday report showed that there was a huge backlog in construction, which suggests that home building will continue to slow down. The soaring costs of building homes and the shortage of suitable materials had already made it difficult to build them. Housing is the most affected sector in the economy by interest rates.

Conrad DeQuadros is a senior economist at Brean Capital. He stated that housing construction seems to be in transition. The sector is caught between rising mortgage rates, declining affordability, and increasing backlogs.

The April seasonally adjusted annual rate for building permits was 1.819 millions units, which is the lowest since November. This was the most severe drop in single-family housing, with permits falling 4.6% at a rate 1.110 millions units. It is the lowest level since October.

All four regions had single-family permits.

The rate at which permits were issued for buildings with more than five units decreased 0.6% to 656,000 units.

According to a Tuesday survey, the National Association of Home Builders/Wells Fargo Housing Market Index saw its May reading drop to its lowest in two years. Builders blamed the 5th consecutive monthly drop in sentiment on the soaring costs of building materials and fast rising mortgage rates for this month’s decline.

Based on data from Mortgage Finance Agency, the 30-year fixed-rate mortgage rate averaged 5.3% during the week that ended May 12th. This was the highest weekly average since 2009. Freddie Mac (OTC:). Since mid-March, when the Federal Reserve raised interest rates to reduce high inflation and cool down demand, it has risen by over 100 basis points.

From March, the U.S. central banks has raised its policy rate 75 basis points. It is anticipated that the Fed will increase its policy interest rate by half of a percentage point each meeting in June or July.

The rate at which housing starts declined 0.2% last month was 1.724 Million units. Reuters polled economists to forecast that housing starts would fall to 1.765million units.

The largest share of new homebuilders is single-family homes. However, they fell 7.3% to 1.100m units. This was also their lowest point since October last year. While single-family homebuilding declined in the Northeast, Midwest, densely populated South and South, it rose in the West.

Due to strong rental demand, the 16.8% increase in starts of housing projects that have five units or greater prompted a rise in 6.8% for those with 5 units and more. The record-low housing supply has supported homebuilding despite the fact that there is a second monthly decrease in overall starts. In April, the backlog of homes approved for construction rose 0.7% to 288,000 units.

Abbey Omodunbi is a senior economist with PNC Financial (NYSE:) in Pittsburgh. She stated, “The housing market continues to be undersupplied. There is a significant shortage of housing supply which will not been restored in the immediate term.”