WASHINGTON–Sales of new U.S. single-family homes fell more than expected in May due to higher mortgage rates, which sapped demand and boosted the supply of unsold houses on the market, even as mortgage apps for new homes rose in the most recent data.

New home sales units dropped 13.7% to a seasonally adjusted annualized rate of 623,000 units last month, the Commerce Department’s Census Bureau said.

In releasing its data, the pace of sales was revised lower to a rate of 722,000 units from the previously reported 743,000 units.

What New Data Also Show

Other data points released by the Commerce Department:

• New home sales decreased 6.3% on a year-on-year basis in May. 
• The inventory of unsold homes on the market increased to 507,000 units, the highest level since late 2007, from 500,000 in April.
• The average rate on the popular 30-year fixed mortgage hovered just under 7% in May, data from mortgage finance agency Freddie Mac showed.

Government data last week showed permits for future construction of single-family housing dropped to a two-year low in May as builders struggled with the inventory overhang and higher costs from duties on materials, including lumber, steel and aluminum.

Builders Cut Prices

Meanwhile, the National Association of Home Builders reported a rise in the share of builders cutting prices to reduce the inventory bulge, and forecast a drop in single-family housing starts this year..

Mortgage Applications Inch Up

All that comes at the same time the Mortgage Bankers Association reported that mortgage applications inched up 1.1% on a seasonally adjusted basis for the week ending June 20. 

The increase came despite slightly higher mortgage rates and was helped by a bump in refinancing activity, particularly for FHA loans, according to the MBA, which said the week’s results include an adjustment for the Juneteenth holiday.

Additional Data Points

The MBA’s composite index — a measure of total loan application volume — fell 10% on an unadjusted basis from the prior week but showed a 1.1% rise after seasonal adjustment. 

• Refinance applications rose 3% week-over-week and were up 29% compared to the same period a year ago. 
• Purchase applications fell 0.4% on a seasonally adjusted basis and 11% unadjusted from the previous week, but were still 12% higher than a year ago.
• The average loan size for purchase applications declined to $436,300.
• The 30-year fixed mortgage rate rose to 6.88% from 6.84% the prior week. 
• Rates on jumbo loans also hit 6.88%, up from 6.81%. The rate for 30-year FHA-backed loans rose from 6.57% to 6.59%, while the 15-year fixed dipped to 6.11% from 6.14%. 
• The rate for 5/1 adjustable-rate mortgages (ARMs) climbed to 6.16% from 6.10%.
• The refinance share of total applications edged up to 38.4%, up from 37.3% the previous week. 
• The share of applications backed by the FHA increased to 19.3% from 17.8%, while VA loans made up 11.7%, down from 12.1%. 
• The USDA loan share of applications decreased from 0,6% to 0,5%.