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 opted to keep interest rates on hold.
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.
"New homes are still a tough sell. Despite aggressive pricing, half of completed new homes are still sitting on the market after 8.5 months, the highest median months reading since 1982," said Patrick Newport, a US economist at Global Insight.
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 multiyear housing bubble abruptly burst.
The bleak snapshot on the US housing market was released shortly before the Fed announced it was keeping its base interest rate anchored at 2.0 percent following a two day meeting.
Many analysts had predicted that the Fed would not tweak the rate, which affects housing activity, at this month's meeting despite coming under pressure from 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.
The central bank said the economy was continuing to grow, but said:"tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters.
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.
Real estate agents usually look forward to the summer months as warmer temperatures traditionally tempt more buyers out to start searching for a new home, although the new home market is much smaller than that for existing homes.
"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 refinance existing home loans with cash-strapped banks.
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