U.S. New-Home Sales Rise
At Fastest Pace Since December

U.S. new-home sales unexpectedly rose in May at their fastest pace since December, as sales climbed sharply in the South and the West.

Sales of single-family homes increased 4.6% last month to a seasonally adjusted annual rate of 1.234 million, the Commerce Department said Monday. Year-to-year, new home sales were still down 5.9% from the pace in May 2005.

Wall Street had expected a drop in sales last month. The median estimate of 11 economists surveyed by Dow Jones Newswires and CNBC was for the May data to show a 4.0% decline from the previous month to a 1.150 million annual rate.

Economists are watching housing data closely to gauge the magnitude of an anticipated slowdown in residential real estate activity following years of torrid market growth that has buoyed consumer sentiment and spending.

The unexpected increase in new home sales could have an effect on monetary policy. The Federal Reserve is widely expected to raise short-term interest rates again when it meets Wednesday and Thursday, extending a two-year credit tightening cycle in an effort to restrain inflation. But the course of the housing market could be a major influence on future decisions.

In the statement accompanying its last rate increase, in May, the Fed's policy-setting Federal Open Market Committee said slower economic growth was likely, "reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices."

While the direction of housing market indicators hasn't been uniform, so far this year's data generally have shown a slowdown. Last week the National Association of Home Builders reported its index for new home sales fell to its lowest level in more than 11 years.

At its meeting this week, the FOMC will have another housing market metric to consider, as the National Association of Realtors is scheduled to report Tuesday on May's existing home resales.

In Monday's report on new home sales, the Commerce Department said May sales climbed 6.0% in the South, reaching their highest point since October. Meanwhile, sales were up 5.3% in the West, reaching their higest point since January, and they were up 2.7% in the Midwest.

But in the Northeast, sales were down 7.9%, hitting the lowest regional level since July 2004.

Home prices fell last month. The average price of a home dropped to $294,300, down from an upwardly revised $302,200 in April. Meanwhile, the median price dropped to $235,500 from an upwardly revised $245,900. Compared with a year earlier, the average price in May was 2.4% higher, and the median price was 2.9% higher.

There were an estimated 556,000 homes for sale at the end of May, down from April's record 560,000. May's inventory represented a 5.5 months' supply at the current sales rate. In April, the inventory represented 5.8 months at the current sales rate.

An estimated 114,000 homes were actually sold last month, up from 105,000 in April, based on figures not seasonally adjusted.

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