New-home sales surge in May with buyers returning to market

New-home sales rose more than expected in May, with record-low mortgage rates pulling buyers back into a housing market that froze up during the pandemic.

Purchases of single-family houses climbed 16.6% to a 676,000 annualized pace, government data showed Tuesday. The median forecast based on a Bloomberg Survey of economists was for 640,000.

Homebuilders are welcoming buyers back after social-distancing rules across much of the U.S. kept them on the sidelines in March and April.

A growing share of buyers are opting for new homes because existing-home listings are in short supply. Record-low interest rates have made the properties affordable to a larger share of buyers.

"The fact that we're reaching the levels we are in a pandemic and a recession is unbelievable," said Ali Wolf, chief economist at Meyers Research. "Low rates have tilted the equation toward some buyers actually being able to afford a new home."

In a sign of recent strength, the annualized pace of new homes selling in May before the start of construction was about 184,000, the highest in three months. The inventory of new houses for sale was the lowest since July 2018.

Purchases in the South, the largest U.S. region, increased 15.2% to a seven-month high. They jumped 29% in the West, the fastest pace in three months, the government's data show.