Fewer people bought new homes last month, the latest sign that the struggling housing market won't rebound this year.

The Commerce Department says new-home sales fell 2.1 percent in May to a seasonally adjusted annual rate of 319,000 homes. That's far below the 700,000 homes per year that economists say must be sold to sustain a healthy housing market.

The median sales price rose 2.6 percent from April to $222,600. That's more than 30 percent higher than the median sales of price of older, re-sale homes.

Separately, the Labor Department said the number of people who applied for unemployment benefits rose by the most in a month, signaling growing weakness in the job market. Applications rose by 9,000 to a seasonally adjusted 429,000 last week. It was the second increase in three weeks and the 11th straight week that applications have been above 400,000.

Housing remains the weakest part of the U.S. economy, analysts say. Sales of new homes have fallen 18 percent in the two years since the recession ended. Last year was the worst for new-home sales on records dating back half a century.

Though new homes represent only about 20 percent of the overall home market, they have an outsize impact on the economy. Each new home creates an average of three jobs and $90,000 in taxes, according to the National Association of Home Builders.

Larger down payment requirements, tougher lending standards and high unemployment are preventing people from buying homes. Many people who can afford to buy are holding off, worried that prices have yet to bottom out.

Sales were uneven across the country. In the Northeast, they plunged nearly 27 percent and sales dropped 3.5 percent in the West. But sales stayed flat from April in the Midwest and rose 2.4 percent in the South.

The number of new homes on the market fell again in May to its lowest level on record _ 166,000 homes. It would take a little more than 6 months to clear those homes off the market, which economists say is a healthy level. But that number is artificially low, they say. In reality, millions of potential sellers are waiting for prices to rise before putting their own homes on the market.

One reason new homes are priced so much higher than previously occupied homes is the flood of foreclosures and short sales _ when lenders let homeowners sell for less than they owe on their mortgage. Those homes are selling at an average discount of 20 percent. Ultimately, foreclosure sales pull down neighboring home values.

Roughly 1.2 million homes will be foreclosed upon this year, according to foreclosure tracker RealtyTrac Inc., and an additional 1.7 million homes represent the nation's "shadow inventory" of homes that are at risk of foreclosure, according to real estate data firm CoreLogic.

Federal Reserve Chairman Ben Bernanke said Wednesday that the housing market was a strong and persistent factor hurting the broader economy. For the market to recover, he said foreclosures must be cleared from the pipeline of homes for sale.

Bernanke said he would prefer that banks help homeowners facing foreclosure by lowering their monthly payments through modified loans. But he also said that if those modifications were not appropriate, it was important to speed up foreclosures to "give people confidence that they can buy and not be buying into a falling market."

Last year was the fifth straight year that new-home sales fell. That followed record-high sales in the previous five years, when the housing market was booming. Economists say it will take years before sales return to pre-housing boom levels.

A telling sign of how far things have fallen: Home prices have dropped more during this recession than they did during the Great Depression in the 1920s and 30s. And it took 19 years for prices to fully recover during the depression.