New US homes sales surge to six-year high in May

Home for sale in Illinois Image copyright Getty Images

Sales of new US homes surged to a six-year high in May suggesting the housing market is beginning to recover from its recent slowdown.

Sales increased by 18.6% to a seasonally adjusted annual sales rate of 504,000 - the highest level since May 2008, according to the Commerce Department.

However, the S&P/Case-Shiller index, also released on Tuesday, found house price increases slowed in April.

Economists had expected bigger rises.

On a seasonally-adjusted basis, the home price index, covering 20 major US cities, rose 0.2% in April, and by 10.8% on an annual basis.

"Although home prices rose in April, the annual gains weakened. Overall, prices are rising month-to-month but at a slower rate," said David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices.

A combination of higher mortgage rates and a surge in prices due to a lack of properties available for sale have weighed on the US housing market since the second half of 2013.

However, recent data suggests the housing market is beginning to improve again.

Referring to the new homes figure, Cooper Hawes from Barclays Research said in an analyst note:

"This is the strongest level since the end of the recession and is an encouraging sign that housing activity improved in the second quarter."

A report on Monday showed sales of previously owned homes, the largest part of the US housing market, recorded their largest increase in more than three-and-a-half years in May.

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