US housing slump hits new builds

The US housing slump shows no signs of coming to an end

Sales of new houses in the US were disappointing last month after reaching record highs in April, figures from the US Commerce Department have shown.

Sales of new builds dropped 1.6% - below market forecasts - to an annual rate of 915,000.

This comes as April numbers were also revised downward from an annual rate of 981,000 units to 930,000, as US housing market recovery proved short-lived.

Existing home sale figures for May, published Monday, hit four-year lows.

Analysts had forecast that the worst of the problems in the US housing market had passed after the April numbers were released showing monthly sales up more than 16% to 14-year highs.

But the downgraded figure, combined with a further drop in the price of a new home, have renewed fears that the slump in the housing market could drip into the broader economy causing recession.

Continued slump

New house prices fell 0.9% to $236,100 (£118,098) in May after an 11.1% slump in the previous month as builders continue to offer heavy incentives to buyers to shift stock.

This combined with figures showing a fall in consumer confidence in June, will not reassure a market already concerned with higher inflation, higher interest rates and economic growth, analysts said.

The Conference Board, a private business group, said that its consumer confidence index fell almost five points to 103.9, its lowest level since last August and below what market observers were expecting.

The US Federal Reserve's rate-setting committee begins a two-day meeting on Wednesday to decide on the direction of interest rates.

It is widely expected to hold rates at 5.25%.