By Lucia Mutikani
WASHINGTON, June 24 (Reuters) - Sales of new U.S. single-family homes unexpectedly fell in May, weighed down by higher mortgage rates and prices, dampening hopes for a housing recovery this year after prolonged weakness.
The second straight monthly decline in sales reported by the Commerce Department on Wednesday underscored the challenges facing prospective homeowners. Economists and realtors say stubbornly high mortgage rates, which have increased in the wake of the U.S.-led war
with Iran, were pricing out buyers.
The U.S. Congress on Tuesday passed a bill to make housing affordable, by among others restricting single-family homeownership by Wall Street investment firms and waiving or speeding up environmental reviews for construction projects. Economists and housing advocates said more needed to be done.
"There was not a lot in there to help traditional single-family home buyers. There are not enough homes on the market and those that are listed are at mostly unaffordable levels," said Christopher Rupkey, chief economist at FWDBONDS.
"The housing price bubble is still inflating, a slower rate of advance than it had been, but home prices overall are still moving higher except for some regional markets that had seen prices run-up too high."
The bill, a bipartisan effort, was on hold as President Donald Trump on Wednesday canceled signing it in an attempt to pressure fellow Republicans to pass voting restriction measures he favors.
New home sales dropped 7.3% to a seasonally adjusted annualized rate of 580,000 units last month, the lowest level since January, the Commerce Department's Census Bureau said. Sales plunged to a seven-month low in the West. They fell in the South, but rose in the Northeast and Midwest.
New home sales, which are counted at the closing of a contract, account for a small share of U.S. home sales. They declined 6.8% year-over-year in May. The nearly four-month war has driven up oil prices, boosting inflation and Treasury yields, which are tracked by mortgage rates.
The rate on the popular 30-year fixed mortgage has increased by about 50 basis points since the conflict started at the end of February, data from mortgage finance agency Freddie Mac showed. It averaged 6.47% last week.
WAITING FOR MORTGAGE RATES TO FALL
A Bank of America Institute report on Tuesday showed homeownership sentiment among consumers increased this year for the first time since 2023, but affordability remained the top barrier for prospective buyers. About 47% of consumers identified high interest rates as one of the key factors causing them to delay buying a home. That was up from 40% in 2025.
The share viewing high home prices as a factor in postponing purchasing decisions jumped to 58% from 46% last year. About 71% of consumers said they expected prices and interest rates to fall and are waiting until then to buy a home, the survey showed. Lack of housing affordability is a major concern for voters ahead of November's midterm elections.
"This (bill) is progress but it is no silver bullet," said Shamus Roller, chief executive officer at the National Housing Law Project. "We call on Congress to go further in addressing the housing crisis for poor and working people by making significant financial investments to build new housing, including new public housing."
Though the median new house price was little changed at $424,900 from a year earlier, the average price increased 5.0%, the Census Bureau report showed. Most of the homes sold last month were in the $300,000-$499,999 range. Builders have been cutting prices and offering sales incentives to lure buyers.
With sales declining, new housing inventory increased to 496,000 units in May, the highest level since July 2025, from 485,000 units in April. Despite the increase in the supply of new single-family units, there is a national housing shortage, specifically of starter homes.
The National Association of Home Builders estimates the housing shortfall at about 1.2 million homes. The new housing inventory overhang could make it difficult for builders to break ground on new single-family housing projects.
At May's sales pace, it would take 10.3 months to clear the supply of new houses on the market, the longest since 2009 and up from 9.3 months in April. Economists had anticipated a turnaround in the housing market fortunes as mortgage rates fell early in the year. Residential investment, which includes homebuilding, has contracted for five straight quarters.
"Unfortunately, builders may have jumped the gun in assuming that their inventory problems were over, no doubt penciling in a better spring selling season than what has transpired," said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets. "We could see a leveling off before the end of the year, but with demand for new homes tepid .... it is beginning to look like we may have to wait for 2027 to get to a long-awaited improvement in the housing market."
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
