The Housing Industry Association (HIA) said on Wednesday that new home sales fell to a three-month low in May thanks to the ever-increasing interest rates which further doused cold water on an already struggling fresh housing demand recovery.

HIA said that first home buying declined to a seasonally adjusted 6.4 percent to 8,024 units in May, as compared to the 6.2 percent rise seen in April while private home sales slid by 5.9 percent in the same month with the multi-unit sector sales suffering a loss of 11.6 percent.

HIA chief economist Harley Dale said that new home sales were beginning to absorb the impact of the 4.5 percent cash rates increase effected by the Reserve Bank of Australia (RBA) in May, as he stressed that "there is no sustained upward momentum in new home sales in 2010 because higher interest rates and concerns over the threat of further rate hikes are dampening demand."

Dr Dale added that the absence of affordable land and tight credit availability for real estate development were putting great pressure on the new home building sector as he predicted that the anticipated recovery of the new residence industry could be stalled by the mid-part of 2011.

He said that the RBA would serve the industry well by pausing on further rate hikes through the remainder of 2010 as he urged federal housing authorities to accelerate the progress "in addressing the supply side obstacles related to land, planning, skilled labour, taxation, regulation, and finance."

Dr Dale said that such hindrances could prove to be the major contributors on Australia's faltering new home building recovery.

According to HIA, NSW and South Australia saw spikes in their new home sales, posting 13.6 percent and 2.1 percent increases respectively in May.

On the other hand, three states saw considerable declines in their respective new home sales with Queensland falling by 12.3 percent, Western Australia sliding by 10.7 percent and Victoria losing up to 8.5 percent.