New Home Sales Fell 0.2% in May

Sales of new homes slowed in May for the second straight month, adding further evidence that higher mortgage rates are hampering the strength of the U.S. housing market.

New home sales declined 0.2% in May to a seasonally adjusted annual rate of 875,000, the Commerce Department reported Thursday. The report also sharply revised April sales downward to an 8.6% drop, or an 877,000 annual rate from a previously reported 909,000 rate.

The data are yet another indication that higher mortgage rates, along with dipping consumer confidence, could be weighing on Americans' desire to buy homes.

The housing market is one of the most interest-rate-sensitive portions of the economy because the vast majority of home sales are financed. Mortgage rates have been pushed up over the last year as the Federal Reserve raised short-term interest rates in an attempt to slow the economy. According to mortgage giant Freddie Mac, the rate for a typical 30-year fixed mortgage averaged 8.52% in May, compared with 8.15% in April and 7.15% in May 1999.

The slump in new home sales runs counter to data earlier this week from the National Association of Realtors that showed sales of existing homes rose 4.3% in May to an annual rate of 5.09 million.

But by most measures, home sales have slowed in recent months.

Some economists have suggested that any slowdown in home sales has come from a lack of supply, rather than a pullback in demand. But the breadth of the slowdown, which included a 3.9% dip in homebuilding starts and a 4.3% drop in building permits in May, seem to suggest that the entire sector is bracing for slower activity.

In other economic data Thursday, the government said the economy grew at a 5.5% annual rate in the first quarter, compared with an earlier estimate of 5.4%. The growth is significantly slower than the 7.3% annual pace of late 1999.