Sales of new U.S. single-family homes tumbled to a two-year low in April likely as higher mortgage rates and soaring prices squeezed first-time buyers and those in search of entry-level properties out of the housing market.

New home sales plunged 16.6% to a seasonally adjusted annual rate of 591,000 units last month, the lowest level since April 2020, the Commerce Department said on Tuesday. March's sales pace was revised down to 709,000 units from the previously reported 763,000 units.

Sales have now declined for four straight months. New home sales dropped 5.9% in the Northeast and tumbled 15.1% in the Midwest. They plummeted 19.8% in the densely populated South and decreased 13.8% in the Midwest.

Economists polled by Reuters had forecast new home sales, which account for a small share of U.S. home sales, would fall to a rate of 750,000 units. Sales dropped 26.9% on a year-on-year basis in April. They peaked at a rate of 993,000 units in January 2021, which was the highest level since the end of 2006.

Graphic: New home sales -

The housing market is the segment of the economy most sensitive to interest rates, and new home sales are a leading indicator for the sector as they are counted at the signing of a contract.

The 30-year fixed-rate mortgage jumped above 5% in April for the first time since February 2011, according to data from mortgage finance agency Freddie Mac. It has surged, averaging 5.25% in the week ending May 19, as the Federal Reserve raises interest rates to cool domestic demand and lower high inflation.

Data last week showed sales of previously owned homes dropped to a two-year low in April, while single-family building permits were the lowest since last October. Single-family homebuilder confidence was near a two-year low in May.

Despite signs that demand for housing is slowing, a record shortage of homes will likely limit the decline in sales. The moderation in sales gains could allow supply to increase and slow double-digit price growth.

The median new house price in April soared 19.6% from a year ago to $450,600. Nearly all the houses sold last month were above the $200,000 price level. There were 444,000 new homes on the market at the end of April, up from 410,000 units in March. Houses under construction made up roughly 65% of the inventory, with homes yet to be built accounting for about 27%.

The backlog of homes approved for construction but yet to be started is at an all-time high as builders struggle with shortages and higher prices for inputs like lumber for framing, as well as cabinets, garage doors, countertops and appliances.

At April's sales pace it would take 9.0 months to clear the supply of houses on the market, up from 6.9 months in March.