Sales of new homes dipped slightly in May, sliding 0.6% to a seasonally adjusted level of 342,000 units, according to data released Wednesday by the U.S. Census Bureau.

While that only represents a small drop, it surprised analysts, who had predicted new-home sales would rise to the 360,000-unit level last month. (On an annual basis, the May 2009 figures represent a 32.8% drop in sales activity.)

What’s holding new homes back? Existing homes, especially foreclosures with their too-good-to-be-true price tags. According to the National Association of Realtors, which released its housing data Tuesday, sales of existing homes inched up 2.4% in May, hitting a seasonally adjusted pace of 4.77 million units. Prices for such homes continue to drop, with existing homes selling for a median of $173,000 in May, a drop of 16.8% compared to the same month one year ago.

In contrast, the median price for new homes in May stood at $221,600. On an annual basis, that represents a drop of 3.4%, as wincing builders know, but it’s still significantly higher than the existing-home competition.

On the positive side, new-home inventories contracted again in May, declining 2.3% to 292,000 units. But at least one industry-watcher says such reductions unfortunately have very little impact on pricing and new-home demand given the overwhelming volume of existing homes on the market. “We believe the core problem facing the housing market is still the highly elevated level of existing homes available for sale, which, while down 3.5% sequentially in May, remains elevated at 3.798 million, or 13 times the size of new home inventory,” said Michael Rehaut, an equity analyst who covers home building companies for J.P. Morgan.

Alison Rice is senior editor, online, at BUILDER magazine.