New-Home Sales Plunge 14.9%; High Interest Rates Cited

New-home sales plummeted 14.9% 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 Monday.

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 home 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 in later reports, the May increase marked the first time the median price of a new home has topped $100,000. The May increase put prices 9.1% higher than in April, when the median price of a new home was $97,900.

The median price means that half the homes sold for more and half for less.

The average price of a home rose as well, climbing 10.3% to a record $129,600 in May.

The 14.9% drop in sales followed a slight 1% increase in April and was the biggest monthly sales decline since a 19.5% plunge in January, 1982.

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.

The May decline in sales followed a revised 1% April increase, which initially had been reported at a much stronger 7.6% gain.

For May, sales were down substantially in all parts of the country, led by a 34.5% plunge in the Midwest, which left sales there at an annual rate of 78,000 units.

Sales were down 12.5% in the South, which accounted for almost half of the new homes sold last year, dropping the annual rate to 253,000 units in that area.

In the West, sales fell 9.5% to an annual rate of 181,000 units, and in the Northeast, sales were off 10.3% to a rate of 105,000 units.