New U.S. home construction slumped again in January to the lowest level since 2020 as elevated mortgage rates combined with pervasive inflation continued to cool demand.

Housing starts slid 4.5% last month to an annual rate of 1.31 million units, according to new Commerce Department data released on Thursday. That is below Refinitiv economists’ forecast for a pace of 1.35 million units.

Applications to build – which measures future construction – were little changed at an annualized rate of 1.34 million units. Permits for the construction of single-family homes, which account for the biggest share of homebuilding, dropped 1.8%.

The data comes one day after the National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, rose more than expected to 42, the highest reading since September. Any reading above 50 is considered positive; prior to 2022, the gauge has not entered negative territory since 2012, excluding a brief – but steep – drop in May 2020.

The index has fallen to half of what it was just one month ago, when it stood at 81, although it has increased from a low of 31. It peaked at a 35-year high of 90 in November 2020, buoyed by record-low interest rates at the same time that American homebuyers – flush with cash and eager for more space during the pandemic – started flocking to the suburbs.

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