Australia new home sales fell 5 pct in May

SYDNEY, July 1 (Reuters) - Sales of new homes in Australia fell in May as high mortgage rates scared away buyers, while surging costs deterred builders, a Housing Industry Association (HIA) survey showed on Tuesday.

HIA said total sales fell a seasonally adjusted 5 percent in May, after a flat result in April. Private detached house sales dropped 5.3 percent, while often-volatile multi-unit sales fell 2.4 percent.

"New home sales results confirm a renewed cyclical weakness evident across a range of leading housing indicators, a finding that should surprise nobody given the aggressive tightening in monetary conditions seen over the last 12 months," said HIA's chief economist, Harley Dale.

The Reserve Bank of Australia (RBA) has raised its benchmark rate four times since August, lifting it by a full percentage point to 7.25 percent. Commercial banks have raised their mortgage rates even further to cover higher funding costs from the global credit squeeze.

"Higher cost of living and monthly mortgage servicing obligations will continue to weigh on home buying sentiment and new home building activity over 2008/09," added Dale.

HIA estimates that an extra 40,000 homes need to be built every year to match rising demand, in part due to record levels of immigration.

HIA's new home sales survey is compiled from a sample of the largest 100 residential builders in Australia and can be a leading indicator of new housing activity. (Reporting by Wayne Cole; Editing by James Thornhill)