By LUCIA MUTIKANI Reuters
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WASHINGTON — Sales of new U.S. single-family homes dropped to a six-month low in May as a jump in mortgage rates weighed on demand, offering more evidence that the housing market recovery was faltering.

But the sting from the largest decline in sales in more than 1-1/2 years, reported by the Commerce Department on Wednesday, was softened by a sharp upward revision to data for April, which now shows sales rising instead of falling as previously estimated. Supply was the highest in more than 16 years.

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The housing market has been the sector hardest hit by the Federal Reserve’s aggressive interest rate hikes since March 2022. It had, however, pulled out of the slump starting in the third quarter of last year as an acute shortage of previously owned homes boosted demand for new construction.

The resurgence in mortgage rates has also undercut sales of previously owned homes and homebuilding.

“As it stands, today’s report will be further evidence to the Fed that monetary policy is restrictive and it will be time to start lowering rates in the coming months,” said Richard de Chazal, macro analyst at William Blair.

New home sales declined 11.3% to a seasonally adjusted annual rate of 619,000 units last month, the lowest level since November, the Commerce Department’s Census Bureau said. The percentage-based drop was the biggest since September 2022.

The sales pace for April was revised up to 698,000 units, a nine-month high, from a previously reported 634,000 units.

Economists polled by Reuters had forecast new home sales, which account for 13.1% of U.S. home sales, would hit a rate of 640,000 units.

New home sales are counted at the signing of a contract, making them a leading indicator of the housing market. They, however, can be volatile on a month-to-month basis. Sales slumped 16.5% on a year-on-year basis in May.

Residential investment notched double-digit growth in the first quarter, contributing to the economy’s 1.3% annualized growth pace. Economists at Goldman Sachs trimmed their gross domestic product estimate for the second quarter to a 1.8% pace on the data from a 1.9% rate.