With higher mortgage rates weighing on sentiment, the National Association of Home Builders released a report on Wednesday showing an unexpected deterioration in U.S. homebuilder confidence in the month of May.

The report said the NAHB/Wells Fargo Housing Market Index tumbled to 45 in May from 51 in April. Economists had expected the index to come in unchanged.

Homebuilder confidence decreased for the first time since November 2023, as mortgage rates averaged above 7 percent for the past four weeks per data from Freddie Mac.

“A lack of progress on reducing inflation pushed long-term interest rates higher in the first quarter and this is acting as a drag on builder sentiment,” said NAHB Chief Economist Robert Dietz.

He added, “The last leg in the inflation fight is to reduce shelter inflation, and this can only occur if builders are able to construct more attainable, affordable housing.”

The unexpected slump by the housing market index reflected decreases by all three component indices, with the component measuring sales expectations in the next six months plunging to 51 in May from 60 in April.

The index charting current sales conditions also slid to 51 in May from 57 in April, while the gauge charting traffic of prospective buyers declined fell to 30 in May from 34 in April.

The NAHB said the May HMI survey also revealed that 25 percent of builders cut home prices to bolster sales in May, ending four months of consecutive declines in this metric.

On Thursday, the Commerce Department is scheduled to release a separate report on new residential construction in the month of April.

Housing starts are expected to rebound to an annual rate of 1.420 million in April after plunging to a rate of 1.321 million in March, while building permits are expected to rise to an annual rate of 1.480 million in April after slumping to a rate of 1.458 million in March.