Housing starts in the U.S. fell last month to the lowest since May, as bloated home inventory slowed builders’ appetites to boost production.

New residential construction decreased 8.5% last month to an annualized rate of 1.31 million homes, government data released Wednesday showed. The median forecast in a Bloomberg survey of economist was for 1.37 million starts. 

Meantime, starts of one-family homes fell 7% to an annualized 890,000, the lowest in more than a year. Multifamily construction, which has helped lift overall construction in recent months, also declined, falling nearly 12% to a three-month low.

Home construction has slowed in the last few years as the supply of new homes for sale reached levels not seen since the mid-to-late 2000s. Borrowing costs have dipped recently — potentially offering a tailwind for homebuyers — but economists still see the oversupply of houses depressing construction in the coming months.

Traders expect the Federal Reserve to trim interest rates multiple times this year, starting later on Wednesday. And separate data out Wednesday showed mortgage rates fell last week to the lowest level in nearly a year, spurring a surge in refinancing. 

Ahead of the government report, the Atlanta Fed’s GDPNow forecast saw residential investment being a slight drag on the nation’s third-quarter gross domestic product.

Building permits, which point to future construction, decreased 3.7% to an annualized pace of 1.3 million, a more than five-year low. Single-family permits dropped to the lowest since March 2023.

Last month, the number of single-family homes under construction extended its multi-year decline, falling to an annual pace of 611,000, the lowest since early 2021.

Across the U.S., housing starts in the South, the nation’s biggest homebuilding region, fell 21% to the lowest in nearly a year. Starts also fell in the Midwest, but they rose in the West and Northeast.

The new residential construction data are volatile, and the report showed 90% confidence that the monthly change ranged from a 19.2% drop to a 2.2% gain.

The government will release data on August new home sales next week.