WASHINGTON (AFP) — A government survey Wednesday showed sales of new homes tumbled 2.5 percent across the United States in May amid unsettled economic times, as Federal Reserve policymakers deliberated over interest rates.
A monthly Commerce Department report said that new home sales declined to a seasonally adjusted pace of 512,000 homes compared with April.
Most economists had expected sales to fall more sharply to around 510,000 new properties amid one of the deepest and longest-running US housing slumps in decades.
The latest decline came after sales rose an unexpected 4.8 percent in April to a revised 525,000 new homes.
Demand for brand new homes has declined heavily since early 2006 when a multi-year housing bubble abruptly burst.
The bleak snapshot on the US housing market was released as Fed policymakers neared the end of a two-day meeting on interest rates which significantly affect housing market activity and mortgage rates.
Many analysts expect the central bank, led by chairman Ben Bernanke, to announce around 1815 GMT Wednesday that it will keep its key base rate pegged at 2.0 percent, despite rising inflationary pressures stoked by soaring crude oil prices.
Economists say the Fed cannot afford to cut rates further for the time being, which could offer relief to the stressed housing market, because of mounting inflation risks.
New home sales have tumbled a dramatic 40.3 percent in the year to May despite the Fed aggressively slashing rates since September, amid downbeat economic momentum.
Sales dipped in May as new home demand dropped in the northeast and the western parts of the United States. Sales in the south showed little change, but sales in the Midwest picked up.
"May is not usually a weak house price month, although prices do fall in May," said Robert Brusca, an economist at FAO Economics.
Realtors usually look forward to the summer months as warmer temperatures traditionally tempt more buyers out to start searching for a new home.
"What we are left with is a pattern of volatile home prices and prices that are still exceptionally weak," Brusca said.
The median sales price of a new home sold in May declined 5.1 percent compared with April to 231,000 dollars. The median price has slipped 5.7 percent in the past 12 months.
Some home builders are offering enticing incentives, such as financial assistance and free flat screen televisions, to prospective buyers in a bid to sell newly-built properties.
The glut of unsold new homes flooding the market eased somewhat in May, declining 1.7 percent to 453,000 properties. The government said it would take 10.9 months, or almost a year, to sell this volume of homes at the May sales pace.
The housing downturn has been exacerbated by a sweeping credit crunch which has gummed up the banking sector, making it harder for Americans to obtain new mortgages or re-finance existing home loans with cash-strapped banks.
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