New home sales plummeted 14.9 percent in May, the biggest decline in more than five years, as a sharp spike in mortgage rates drove first-time home buyers out of the market, the government reported yesterday. The Commerce Department said new single-family homes were sold at a seasonally adjusted annual rate of 616,000 units in May while the median price of a new home shot up to a record $106,800.
Analysts attributed the jump in prices to the fact that many first-time buyers, who normally purchase less-expensive homes, had been driven out of the market by the higher mortgage rates. With fewer low-priced homes sold, both the median and average sales prices increased.
Unless there is a downward revision later , the May increase marked the first time the median price of new homes has topped $100,000. The May increase put prices 9.1 percent higher than in April, when the median price of a new home was $97,900. The median price means half the homes sold for more and half for less.
In addition to the jump in median prices, the average price of a home also rose, climbing 10.3 percent to a record $129,600.
The 14.9 percent drop in sales followed a 1.0 percent increase in April and was the biggest monthly sales decline since a 19.5 percent plunge in January 1982, when the country was in a recession.
The May decline, which left the annual sales rate at its lowest point since December 1984, was blamed on a big jump in mortgage rates caused by financial market jitters over rising inflation and a weaker dollar.
After declining to a nine year low of about 9 percent in late March, fixed-rate mortgages shot up to a high of 10.81 percent on May 22. They have retreated slightly since then and now stand at 10.35 percent, according to a weekly survey by the Federal Home Loan Mortgage Corp.
"The sharp decline in sales during May demonstrates that housing is still an interest-rate sensitive industry," said James Fischer, president of the National Association of Home Builders. "But the consumer uncertainty created by the volatility of financial markets during April and May has now subsided with mortgage rates stabilizing in recent weeks.'