Sales of new homes fell unexpectedly in May, revealing signs that the housing market's recovery is likely to be gradual and prolonged.

As per U. S. Census Bureau and Department of Housing and Urban Development's freshly released figures new home sales fell to an annual rate of 342,000 in May, 32.8 % below the same period in 2008 and 0.6 % below April.

Earlier, analysts projected the rate of new home sales to rise to 360,000.

Speaking on the topic, Bob Walters, chief economist at Quicken Loans said, "Newly constructed homes simply cannot compete with the values found in the existing home market."

In the recent months buyers were brought back into the market by the plunging mortgage rates. But in the past few weeks mortgage rates have rebounded slightly to near 5.76% for a 30-year fixed mortgage.

Government data showed demand for newly built houses fell 31 % in the West, to approximately 80,000 homes per year.

It is important to note here that the median price of a new single family home in May was $221,600 and the average price was $274,300. According to the government data there were 292,000 newly built homes for sale in May which enough for
10.2-month supply at the current sales rate.