(Adds mortgage applications, analyst comments, updates markets)
By Lucia Mutikani
WASHINGTON, July 25 (Reuters) - Sales of new U.S. single-family homes fell to an eight-month low in June and data for the prior month was revised sharply lower, the latest indications that the housing market was slowing down.
The moderation in housing is largely driven by supply constraints, but there are concerns that persistent weakness could eventually spill over to the broader economy, which appeared to have grown robustly in the second quarter.
Housing has been plagued by rising building material costs and shortages of land and labor, which have put a squeeze on the supply of homes available for sale and kept prices elevated.
"The fallout could be weaker sales of consumer durable goods and furnishings that go into these new homes later on this year," said Chris Rupkey, chief economist at MUFG in New York. "The second quarter could well prove to be the high-water mark for growth this year."
The Commerce Department said on Wednesday new home sales decreased 5.3 percent to a seasonally adjusted annual rate of 631,000 units last month, the lowest since October 2017. May's sales pace was revised down to 666,000 units from the previously reported 689,000.
Economists polled by Reuters had forecast new home sales, which account for about 10 percent of housing market sales, falling 2.8 percent to a pace of 670,000 units in June.
New home sales are drawn from permits and tend to be volatile on a month-to-month basis. They increased 2.4 percent from a year earlier. Housing market data has weakened in recent months, with homebuilding falling to a nine-month low in June and home resales declining for a third straight month. Building permits also dropped to a nine-month low in June.
"The housing market is flattening, and may have peaked for this expansion," said Robert Frick, corporate economist for Navy Federal Credit Union in Vienna, Virginia.
The housing market has underperformed the economy this year. According to a Reuters survey of economists, the economy likely grew at a 4.1 percent annualized rate in the second quarter, which would be double the 2.0 percent pace set in the January- March period.
DRAG ON GROWTH
Economists are forecasting no contribution from housing to gross domestic product in the second quarter. Residential investment subtracted from GDP growth in the first quarter.
The government will publish its snapshot of second-quarter GDP on Friday.
"We do not expect housing to be an important driver of economic activity going forward but neither do we expect a retrenchment," said John Ryding, chief economist at RDQ Economics in New York.