Housing stocks slid Wednesday morning on the heels of fresh government data signaling a weak recovery in new residential construction.

The SPDR S&P Homebuilders ETF (XHB) was down 1% while D.R. Horton, Inc. (DHI), the biggest US homebuilder, fell by nearly 2%, and Lennar (LEN) and Toll Brothers (TOL) dragged by 2% during morning trading.

Construction for single-family and multifamily homes modestly rebounded in April from the prior month but was down year over year and was lower than anticipated, as rising mortgage rates dampened housing activity.

Privately-owned housing starts in April were at a seasonally adjusted annual rate of 1.36 million, up 5.7% from March’s revised rate but down 0.6% from the year-earlier period, according to data from the Census Bureau released Thursday. Economists surveyed by Bloomberg were expecting a 1.42 million rate.

“The recovery wasn’t as strong as we had anticipated, which potentially casts some doubt on our above-consensus forecast for homebuilding,” Thomas Ryan, an economist at Capital Economics, wrote in a note following the release.

This comes as homebuilders aren’t feeling too confident about the housing market as mortgage rates have stayed above 7%. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell to 45 in May, down six points from April’s figure, marking the first decline since November 2023. Any number under 50 indicates that more builders view conditions as poor rather than good.

Despite the bleak expectations from builders, Ryan anticipates that single-family starts could climb to 1.11 million this year “as homebuilders capitalize on the lack of second-hand homes on the market, which has shifted demand to newbuilds.”

However, some of that strength could be offset by weaker movement in multifamily starts, potentially leaving total housing starts at 1.43 million by the end of the year, Ryan said.