New home sales hit five-year high, prices soar

WASHINGTON (Reuters) – New U.S. home sales vaulted to a five-year high in June, showing no signs of slowing in the face of higher mortgage rates.

Other data on Wednesday showed an acceleration in U.S. factory activity this month, boosting hopes of a third-quarter pick-up in economic growth.

Single-family home sales increased 8.3 percent to a seasonally adjusted annual rate of 497,000 units, the highest level since May 2008, the Commerce Department said. Sales rose 1.3 percent in May.

Economists polled by Reuters had expected new home sales to advance to a 482,000-unit rate last month.

Compared with June last year, single-family home sales were up 38.1 percent, the largest increase since January 1992.

The third straight month of gains in new home sales, which are measured when contracts are signed, suggested the housing market was gaining more muscle and should allay concerns that higher mortgage rates could slow down momentum.

There had been worries that higher borrowing costs could crimp the housing market recovery after data on Monday showed a surprise drop in home resales in June.

Mortgage rates have been rising in anticipation of the Federal Reserve starting to reduce its massive monetary stimulus later this year. According to Freddie Mac, the 30-year fixed mortgage rate increased 0.53 percentage point in June to 4.07 percent, its highest level since October 2011.

Still, mortgage rates remain low and Fed Chairman Ben Bernanke last week expressed optimism the housing market recovery would continue.

The strengthening housing market is lending support to manufacturing, which has been hit by deep federal government spending cuts and slowing global demand.

A rebound in new orders helped to lift factory activity to a four-month high in July. Financial data firm Markit’s “flash,” or preliminary, U.S. Manufacturing Purchasing Managers Index, rose to 53.2 this month from 51.9 in June.

A reading above 50 indicates expansion in the factory sector.

U.S. financial markets were little moved by the data.

While the inventory of new homes on the market last month increased to its highest level since August 2011, supply remains tight, putting upward pressure on prices. The median new home price increased 7.4 percent in June from a year ago.

At June’s sales pace it would take 3.9 months to clear the houses on the market, down from 4.2 months in May. A supply of six months is normally considered as a healthy balance between supply and demand.

Sales last month rose in three regions, but fell in the Midwest.

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