RTTNews - With a drop new home sales in the South more than offsetting notable increases in sales in the Northeast and Midwest, the Commerce Department released a report on Wednesday showing that new home sales unexpectedly decreased in May.

The report showed that new home sales edged down 0.6 percent to an annual rate of 342,000 in May from a revised April rate of 344,000. Economists had expected sales to jump 2.3 percent to 360,000 from the 352,000 originally reported for the previous month.

An 8.5 percent decrease in new home sales in the South contributed to the unexpected decrease, with sales in the South falling to an annual rate of 184,000 in May from 201,000 in April.

The decrease more than offset a 28.6 percent increase in new homes sales in the Northeast and an 18.6 percent increase in sales in the Midwest. New home sales in the Northeast rose to an annual rate of 27,000, while sales in the Midwest rose to an annual rate of 51,000.

New home sales in the West showed a modest increase, edging up 1.3 percent to an annual rate of 80,000 in May from 79,000 in April.

The report also showed that the median sales price of new houses sold in May was $221,600, up 4.2 percent from the previous month but down 3.4 percent compared to the same month last year.

Inventories of new homes for sale at the end of May fell 2.3 percent to 292,000 from 299,000 in May. This represents 10.2 months of supply at the current sales rate, down from 10.4 month of supply in the previous month.

With the decrease, the months supply fell to its lowest level since July of 2008, although it remains well above the 30-year average of 6 months.

Peter Boockvar, equity strategist at Miller Tabak said, New homes make up a small part of the market where existing homes with foreclosures are making up a bigger and bigger portion, but the drop in months supply and rise in prices are the focus of homebuilder investors.

A separate report released by the National Association of Realtors on Tuesday showed that existing home sales increased for the second consecutive month in May, although the sales growth came in below economist estimates.

The report showed that existing home sales rose 2.4 percent to an annual rate of 4.77 million units in May from a revised 4.66 million units in April. Economists had expected sales to rise 3 percent to 4.82 million units from the 4.68 million units originally reported for the previous month.

Despite the downward revision to April sales, the annual rate of existing home sales for the month was still up 2.4 percent compared to March. Subsequently, existing home sales showed their first back-to-back monthly gains since September 2005.

However, NAR noted that existing home sales remain 3.6 percent below the 4.95 million-unit rate reported for May of 2008.

Lawrence Yun, NAR chief economist, said, Historically low mortgage interest rates clearly drew buyers into the market, and housing remains very affordable even with a recent uptick in rates.

Yun said that the increase in existing home sales came in below expectations because poor appraisals are stalling transactions.

Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan, he said.

For comments and feedback: contact editorial@rttnews.com