WASHINGTON – Sales of new U.S. single-family homes fell more than expected in May as high mortgage rates sapped demand, boosting the supply of unsold houses on the market.

New home sales units dropped 13.7% to a seasonally adjusted annualized rate of 623,000 units last month, the Commerce Department’s Census Bureau said on Wednesday. The sales pace for April was revised lower to a rate of 722,000 units from the previously reported 743,000 units.

Economists polled by Reuters had forecast new home sales, which make up about 15% of U.S. home sales, declining to a rate of 693,000 units. New home sales, which are counted at the signing of a contract, are volatile on a month-to-month basis and subject to big revisions.

They decreased 6.3% on a year-on-year basis in May. The inventory of unsold homes on the market increased to 507,000 units, the highest level since late 2007, from 500,000 in April.

Mortgage rates have remained elevated in tandem with U.S. Treasury yields amid heightened economic uncertainty stemming from President Donald Trump’s tariffs, which have prompted the Federal Reserve to pause its interest rate cutting cycle.

Fed Chair Jerome Powell told lawmakers on Tuesday that the sweeping import duties could begin raising inflation this summer and reiterated that the U.S. central bank was in no rush to resume rate cuts.

Fed Left Benchmark Overnight Interest Rate

The Fed last week left its benchmark overnight interest rate in the 4.25%-4.50% range where it has been since December.

The average rate on the popular 30-year fixed mortgage hovered just under 7% in May, data from mortgage finance agency Freddie Mac showed.

Government data last week showed permits for future construction of single-family housing dropped to a two-year low in May as builders struggled with the inventory overhang and higher costs from duties on materials, including lumber, steel and aluminum.

A National Association of Home Builders survey last week also showed sentiment among single-family homebuilders plummeted to a 2-1/2-year low in June. The NAHB reported a rise in the share of builders cutting prices to reduce the inventory bulge, and forecast a drop in single-family housing starts this year.

Economists expect residential investment, which includes homebuilding and sales, to have contracted in the second quarter after a slight decline in the January-March quarter.

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(Reporting by Lucia Mutikani, Editing by Franklin Paul)