WASHINGTON -- Sales of new single-family homes fell in May for the second month in a row, the Commerce Department reported Wednesday, prompting analysts to say they expect any economic recovery to be modest.
New homes sales slumped 3.3%, to a seasonally adjusted annual rate of 474,000 from a revised 490,000 in April. Moreover, with the revisions to April, sales for the month dipped 0.2%, wiping out the 1.2% increase reported last month.
On a regional basis, the declines in May sales were widespread. Sales in the South tumbled from 215,000 to 187,000, the lowest level since January. Sales in the Northeast fell 6.6%, to 56,000 from 60,000, and sales in the West were essentially flat, at 125,000.
Only the Midwest, where auto and other manufacturing production is reviving, showed an improvement as sales shot up 21.5%, to 107,000. That was the highest rate for the region since November 1989, officials said.
"It's not entirely certain that a recovery is going to continue, and even if it does, it's going to be a very weak one, and these numbers reinforce that conclusion," said Lawrence Chimerine, president of Radnor Consulting Service in Wayne, Pa. I don't think we're seeing a major reversal in housing, but it's not surprising things have sort of topped out."
Mr. Chimerine added, "People don't buy houses when interest rates are high, they're worried about their jobs, and they have high debt."
Economists say a recovery in the housing market is important to reviving the economy because new home sales generate jobs and production of building materials. In addition, new home owners typically spend on furnishings and appliances, giving a boost to the manufacturing sector.
Purchasing managers reported Monday that the manufacturing sector climbed out of recession in June. On Tuesday, the Commerce Department said factory orders in May jumped for the second consecutive month.
"There is overwhelming evidence that the recovery is going forward, but the housing sector is just not going to participate in the recovery the way it has in the past economic expansions," said Mark Zandi, an economist with Regional Financial Associates in West Chester, Pa.
Some analysts said higher mortgages rates were dampening home sales. According to the Federal National Mortgage Association, conventional fixed rates rose to 9.6% at the end of June, which brings rates to around 10% when points and fees are included.
But Braggi Valgeirsson, an economist at Fannie Mae, said many buyers are opting for so-called 7-23 mortgages, which provide fixed rates for the first seven years at around 9%. And rates really have not changed much in recent months, he added.
"I don't think the movement on rates over the last four to six weeks is enough to explain anything in new home sales," he said.
Other analysts pointed out that new home sales are only a part of the housing market. Sales of existing homes have been rising steadily since the hitting bottom at the beginning of the year, and sales of homes to first-time buyers have been doing well, said Richard Peach, deputy chief economist for the Mortgage Bankers Association.
The Commerce report said the average new home sales price in May was $154,000, up from $149,000 in April. The median sales price advanced to $121,900, from $120,000.