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June 25, 2018 2:30 PM, EDT

US New Home Sales Climb 6.7% in May

House for sale Patrick Fallon/Bloomberg News

WASHINGTON — Sales of new U.S. homes jumped 6.7% in May, with purchases in the South accounting for all of the monthly gains.

The Commerce Department said June 25 that new homes sold last month at a seasonally adjusted annual rate of 689,000, up from 646,000 in April. The South reported monthly sales growth of 17.9%, while sales were flat in the Midwest and fell in the Northeast and West.

For the first five months of this year, new home sales have risen 8.8% as a solid job market and shortage of existing homes on the market have boosted demand. In a sign that buyers are eagerly seeking out properties among a diminished inventory, there was a 17.4% surge last month in the sale of homes before construction begins.

“With fewer buying options among existing homes, homebuyer demand is shifting towards new builds,” said Ben Ayers, senior economist at insurance company Nationwide.

Buyers also are facing additional pressures as home values generally are rising faster than incomes and average 30-year mortgage rates have risen to 4.57% from 3.90% a year ago. Both of these factors are increasing the monthly costs for repaying home loans.

Aaron Terrazas, a senior economist at real estate firm Zillow, said that sales growth was strong, yet construction still was running below historic levels given population growth.

“We’re building roughly 2.7 homes for every 10,000 Americans — well below historic averages form the 1980s and 1990s of about 4.2 homes per 10,000 residents,” Terrazas said.

Still, the government report on new home sales can be volatile on a monthly basis, especially when any growth or setbacks are focused in one region of the country. May’s median sales price dropped 3.3% from a year ago to $313,000. But the decline largely was because the sales growth was concentrated in the South, where new homes generally are cheaper.