June 24 (Bloomberg) -- Purchase of new homes in the U.S. unexpectedly fell in May as builder discounts failed to keep pace with the foreclosure-driven slump in prices for resales. Sales decreased 0.6 percent to an annual pace of 342,000 after a revised 344,000 rate in April that was lower than previously estimated, the Commerce Department said today in Washington. The median sales prices fell 3.4 percent from May 2008, compared with a 17 percent drop for existing homes reported yesterday by the National Association of Realtors. Without bigger price cuts, builders may keep losing market share as the jobless rate and foreclosures climb, aggravating the drop in resale prices. Sales of new houses made up 6.7 percent of the market in May, down from 12.5 percent two years ago. The recent jump in mortgage rates may hurt demand even more, threatening to undermine the stabilization in construction that’s emerged so far this year. “Further increases in mortgage rates would be a huge concern amid rising unemployment and falling incomes,” Aaron Smith, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. Treasuries fell and stocks rose after an earlier report from Commerce showed orders for durable goods unexpectedly jumped 1.8 percent in May, indicating business investment was starting to stabilize. Benchmark 10-year note yields advanced to 3.64 percent at 10:17 a.m. in New York from 3.62 percent late yesterday. The Standard & Poor’s 500 Stock Index gained 1.4 percent to 907.74. Median Price Economists forecast new home sales would rise to a 360,000 rate from a previously reported 352,000, according to the median of 72 projections in a Bloomberg News survey. Estimates ranged from 345,000 to 400,000 million. The median price of a new home fell to $221,600 from $229,300 in May 2008. The 12-month decrease was the smallest so far this year. The cost was up 4.2 percent from a month earlier. Sales of new homes were down 33 percent from May 2008. They reached a record-low 329,000 in January, down 76 from the July 2005 peak. The drop in sales in May was led by an 8.5 percent slump in the South, the largest region of the country. Sales improved in the other three regions, led by a 29 percent jump in the Northeast. Builders had 292,000 houses on the market last month, the fewest since March 2001, and down 2.3 from April. It would take 10.2 months to sell all homes at the current sales pace, the shortest time since July. Foreclosures Foreclosure filings in the U.S. surpassed 300,000 for a third straight month in May and may hit a record 1.8 million by the first half of the year, RealtyTrac Inc. said June 11. The jump in foreclosures, while providing competition for homebuilders, is one of the reasons more first-time buyers have entered the market. In addition, the Obama administration’s stimulus plan provided an $8,000 tax credit for first-time home buyers for purchases completed before Dec. 1. Sales of existing homes climbed in May for a second month, the first back-to-back increase since 2005, the real estate agents group reported yesterday. Still, soaring unemployment and high levels of debt will put home ownership beyond the reach of some would-be buyers even as home prices fall, according to a report yesterday by Harvard University’s Joint Center for Housing Studies. Borrowing Costs Mortgage borrowing costs are also starting to climb. The rate on a 30-year fixed loan has averaged 5.42 percent so far this month, up from 4.86 percent in May, according to figures from Freddie Mac. The rate reached 4.78 percent in April, the lowest level since records began in 1972. The Fed is buying as much as $1.75 trillion of housing debt and Treasuries this year in a bid to lower borrowing costs. Total assets on the balance sheet have expanded by $1.18 trillion over the past year to $2 trillion. The central bank is scheduled to conclude its policy meeting today. It has held the benchmark interest rate near zero since December. Recent increases in home construction raised hopes the market was starting to stabilize. Housing starts increased 17 percent in May, the Commerce Department said last week. Even so, some builders are cautious about the outlook. New home sales in the U.S. likely will remain little changed in coming months, Pulte Homes Inc. Chief Executive Officer Richard Dugas said at an investor conference yesterday. “We are certainly focused on stability before we get to any type of recovery,” Dugas said at a Wachovia Corp. conference in Boston. “There could be some signs of stabilization,” he said. Still. “I’m not here today before you to call a bottom to the industry.”

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