New Home Sales Reach Two-Year High

New home sales represent about 7.5 percent of the overall housing market, and improving numbers and declining inventories may lead to a boon for the construction industry as well.

Single-family home sales ended a two-month skid in May with the highest numbers in two years, and home prices are also on the rise, continuing to bolster the housing sector in the face of overall market uncertainty.

Sales increased 7.6 percent to a seasonally adjusted annual rate of 369,000 units, the highest since April 2010. New home sales were up 19.8 percent year-over-year, and the median price of a new home also rose 5.6 percent to $234,500 from May 2011.

Housing inventory bumped up 0.7 percent to 145,000 units last month, a sign that the construction industry might also begin improving despite recent industry job loss.

Despite the advances, new home sales are only a quarter of their peak of a 1.389 million-unit pace in July 2005, held back by market constraints that include an oversupply of distressed and foreclosed homes. The housing market has not contributed to economic growth since 2005, a trend economists expect will end this year.

Although new construction and building permits are also up, inventory remained near record lows ?EUR??,,????'??? at May's sales pace it would take 4.7 months to clear the houses from the market, the lowest since October 2005 and down from 5.0 months in April. An inventory less than six months deep typically indicates a market shortage, which could promote more building in the upcoming months.