By Lucia Mutikani

WASHINGTON (Reuters) -Sales of new U.S. single-family homes fell to a one-year low in May as the median price of newly built houses soared amid expensive raw materials, including framing lumber.

The second straight monthly decline in sales reported by the Commerce Department on Wednesday was the latest indication that the tailwind from the COVID-19 pandemic could be subsiding. Single-family housing benefited from a migration from cities as millions of Americans sought more spacious accommodations for home offices and schooling during the pandemic.

“New home sales along with existing home sales suggest home buying activity is past its peak,” said Chris Rupkey, chief economist at FWDBONDS in New York. “We don’t know what is going to happen when the stay-at-home economy shifts to going back to the office.”

New home sales dropped 5.9% to a seasonally adjusted annual rate of 769,000 units last month, the lowest level since May 2020. April’s sales pace was revised down to 817,000 units from the previously reported 863,000 units.

New home sales are considered a leading housing market indicator as they are recorded when contracts are signed. Last month’s decline was concentrated in the populous South, where sales tumbled 14.5%. Sales, however, rose in the Northeast and West. They were unchanged in the Midwest.

Economists polled by Reuters had forecast new home sales, which account for a small share of U.S. home sales, would be at a rate of 870,000 units in May.

New home sales are drawn from a sample of houses selected from building permits and tend to be volatile on a month-to-month basis. Sales rose 9.2% on a year-on-year basis in May. The median new house price jumped 18.1% from a year earlier to $374,400 in May.

U.S. stocks were mixed. The dollar was steady against a basket of currencies. U.S. Treasury prices were lower.

INVENTORY SQUEEZE

The market for new homes is being supported by a dearth of previously owned houses. At least 150 million Americans have been fully vaccinated against the coronavirus, allowing the economy to begin reopening and companies to recall workers back to offices. A report from the National Association of Realtors on Tuesday showed sales of previously owned homes fell for a fourth straight month in May.

Builders have failed to take advantage of the inventory squeeze because of shortages of lumber and other raw materials. Exorbitant prices for raw materials are significantly raising the prices of newly built homes. At the same time, the supply gap is boosting competition for available homes, threatening to sideline some first-time buyers from the market.

The supply-side constraints were also underscored by a separate survey from data firm IHS Markit on Wednesday showing manufacturers struggling to source raw materials this month.

New home sales last month were concentrated in the $200,000-$749,000 price range. Sales below the $200,000 price bracket, the sought-after segment of the market, accounted for only 2% of transactions last month.

There were 330,000 new homes on the market last month, up from 315,000 in April. At May’s sales pace it would take 5.1 months to clear the supply of houses on the market, up from 4.6 months in April. About 76% of homes sold last month were either under construction or yet to be built.

(Reporting by Lucia MutikaniEditing by Paul Simao)

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