Purchases of new homes advanced in May to a six-month high as sales in the South increased to the fastest pace since 2007, according to government data released Monday.
Single-family home sales rose 6.7% month-over-month to a 689,000 annualized pace (the estimate was 667,000) after a 646,000 rate (revised from 662,000). The median sales price decreased 3.3% year-over-year to $313,000. The supply of homes at the current sales rate fell to 5.2 months from 5.5 months.
The stronger-than-forecast gain in U.S. sales reflected a 17.9% surge in the South, the nation’s largest region, to a 409,000 annualized pace. While that was the strongest in almost 11 years, demand was mixed in other parts of the country.
The report also showed a six-month high in the number of homes sold but not yet started, indicating residential construction will continue to boost growth. Inventory remains lean as the supply of homes available at the current sales pace fell to 5.2 months’ worth, the lowest since November.
The pickup in contract signings is an indication that a build-up in home equity tied to rising property values is benefiting trade-up buyers. Demand also remains underpinned by steady hiring and lower taxes.
At the same time, prospects for first-time buyers and those with modest incomes have deteriorated. Mortgage rates near a seven-year high and home prices that are rising much faster than wage growth remain obstacles for these Americans.
The cost of borrowing may continue to creep higher. The Federal Reserve boosted interest rates by a quarter point in June and increased to two the number of additional hikes possible this year.
Data on existing homes released last week showed that sales unexpectedly fell in May for a second month as an inventory crunch pushed prices up and left buyers, particularly first-timers, on the sidelines.