Bloomberg News

WASHINGTON - Sales of new single-family homes in the United States fell in May to the lowest level in eight months, giving further evidence that housing demand is tapering off, according to figures released Thursday.

New home sales fell 0.2% last month to a seasonally adjusted annual rate of 875,000 units from 877,000 units in April, the Commerce Department said. Sales fell in the northeastern and western states.

"It's the bite of interest rates for sure," said Paul Christopher, an economist with A.G. Edwards & Sons Inc. in St. Louis. "It's inevitable we would begin to see more pronounced slowing, but it's still a high rate. It's not a crushing blow here."

May's sales rate was the slowest since September, when it was 848,000 units. Analysts expected new home sales at an annual rate of 900,000 units in May, down from the 909,000 April pace the Commerce Department previously reported.

A slowdown in housing has been expected as mortgage rates have risen in line with a series of six increases in interest rates by the Federal Reserve in the past year. Policymakers voted Wednesday to leave the overnight bank lending rate at a nine-year high of 6.5% and signaled that more increases were possible down the road if the economy does not slow enough to keep inflation in check. Housing is one of the industries most affected by changes in Fed interest rates.

Still, new home sales are on a pace to reach 905,000 this year, close to a record 907,000 units sold last year. "There's slowing in the housing market, but not nearly the sort of weakness the Federal Reserve wants to see," said Steven Wood, an economist at Banc of America Securities Inc. in San Francisco. "If housing doesn't slow more from these levels, the Fed is likely to push rates higher."

The report follows industry statistics released Monday that showed sales of previously owned homes also unexpectedly rose last month. Home resales rose 4.3% in May after falling 6.2% in April.

Construction data for May show a slowdown. Starts of new homes and apartments fell 3.9% last month after rising 1.6% in April. The decline was led by a 5.4% decrease in single-family houses. the fourth drop in five months.

At the May pace, the inventory of homes rose to 4.5 months' worth from 4.4 months' worth in April. The number of homes available for sale rose to 322,000 units in May from 319,000 in April.

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