Sales of new homes rise at fastest rate in two years

New home sales accelerated in May to the quickest clip in more than two years, another signal the housing market is making strides. 

Sales of new single-family houses increased 7.6 percent to a seasonally adjusted annual rate of 369,000, up from April's 343,000, the fastest rate since April 2010, the Commerce Department reported on Monday. The increase is 19.8 percent higher than the same time a year ago.

"May's sales report is a welcome sign that the market has returned to a more solid growth path following lackluster reports in March and April, and is in keeping with our expectations for continued, steady improvement through the end of this year," said David Crowe, chief economist for the National Association of Home Builders. 

"While the current sales rate remains low by historical standards and continues to be constrained by challenges related to credit availability for builders and faulty appraisals, the ongoing decline in the month's supply of new homes will necessitate additional construction in certain markets going forward," he said. 

Despite the improvement, sales are just more than half of the 700,000 economists say reflect a healthy housing market. 

The median sales price of new houses sold in May was $234,500, down 0.6 percent from April, but is 5.6 percent higher than a year ago. The average sales price in May was $273,900. 

The seasonally adjusted estimate of new houses for sale at the end of May was 145,000, a 4.7-month supply and only slightly higher than April's 144,000, which was the lowest level in nearly 50 years. 

Typically, builders aim to have about six months worth of homes available, a level economists say reflects a robust market. 

Builders are responding but picking up their pace of construction, applying for the greatest number of building permits last month in three and a half years.

New home sales fell sharply after the housing bust and have taken longer to recover because of an abundance of less expensive distressed and previously occpied homes on the market. 

The sector is showing signs of gradual improvement, including a steady tick upward in homebuilder confidence, historically low mortgage rates and stabilizing housing prices. 

"The relatively strong increase in new-home sales this May is an indication that more potential home buyers are being drawn to the market by today's excellent mortgage rates as well as firming conditions in some local economies," said Barry Rutenberg, chairman of the NAHB and a home builder from Gainesville, Fla. 

"In addition, more people are recognizing the benefits that new homes can provide beyond what's available in the existing housing stock in terms of energy efficiency, updated technology and other features."

Regionally, the Northeast and South posted the best gains of 36.7 percent and 12.7 percent, respectively. The Midwest and West posted respective declines of 10.6 percent and 3.5 percent.

New homes represent only 20 percent of the market but create an average of three jobs for a year and about $90,000 in taxes, NAHB says.