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US new home sales surge 18.6 per cent in May to annual rate of 504,000, fastest pace in 6 years

In this May 21, 2014 photo, a sign sits in front of a home for sale in West Des Moines, Iowa. The Commerce Department releases new home sales for May on Tuesday, June 24, 2014. (AP Photo/Charlie Neibergall)

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In this May 21, 2014 photo, a sign sits in front of a home for sale in West Des Moines, Iowa. The Commerce Department releases new home sales for May on Tuesday, June 24, 2014. (AP Photo/Charlie Neibergall)

WASHINGTON - Sales of new U.S. homes rose in May to the highest level in six years, providing the strongest signal yet that housing is recovering from a recent slowdown.

New home sales jumped 18.6 per cent last month following a 3.7 per cent increase in April, the Commerce Department reported Tuesday. The gains followed declines in February and March that were blamed in part on harsh winter weather.

The big May increase pushed the seasonally adjusted annual sales rate to 504,000, the highest level since May 2008.

"This is the strongest level since the end of the recession and is an encouraging sign that housing activity improved in the second quarter," Cooper Howes, an economist at Barclays Research, said in an analyst note.

Home sales peaked last year at an annual rate of 459,000 in June, but then lost altitude. The decline reflected an increase in mortgage rates that occurred after the Federal Reserve began discussing pulling back on its monthly bond purchases that were keeping long-term interest rates low.

The inventory of unsold new homes was unchanged at 189,000 homes at the end of May, the same as April. That inventory level would be depleted in 4.5 months at the May sales pace, an extremely low level that underscored the fact that the supply of new homes remains well below historic averages.

Sales were up in all regions of the country in May, led by a 54.5 per cent surge in sales in the Northeast. New home sales rose 34 per cent in the West and 14.2 per cent in the South. The Midwest had the smallest month-over-month sales gain of just 1.4 per cent.

Even with the big overall gain, sales of new homes are still running at just about half the pace of a healthy real estate market.

But there have been some encouraging signs of a spring rebound in housing.

The National Association of Realtors reported Monday that sales of previously owned homes jumped 4.9 per cent in May, the biggest one-month gain in nearly three years. That increase pushed the sales rate to 4.89 million homes, the strongest showing since last October.

While economists were encouraged by the second straight monthly gain in existing home sales, they noted that the sales rate is still below the recent peak of 5.38 million sales hit last July.

Higher mortgage rates and the bad weather weighed on sales of both existing and new homes in late 2013 and early 2014. But sales seem to be staging a rebound, helped by solid job growth and growing inventories of homes for sale, a development that has helped to hold down price increases.

Economists say there is significant pent-up demand for homes as many potential buyers put off purchases over the past few years because of concerns about the economy.

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