New Home Sales and Existing Home Prices Both Surge

PHOTO: Sale pending sign

New home sales rose in May to the fastest pace in five years, adding to signs of a steadily improving housing market.

Sales increased 2.1 percent in May compared with April, according to the Commerce Department, which said the new homes sales rate was at the highest level since July 2008.

Earlier on Tuesday, the S&P/Case-Shiller survey of 20 major metro areas reported a strong increase in average home prices with prices rising in all 20 cities.

"We're definitely seeing some good news and some very strong numbers," David Blitzer of S&P Dow Jones Indices told ABC News.

The average of the S&P/Case-Shiller home price index was up by 12.1 percent from last year.

"That's the best number in seven years," says Blitzer. April's price rise compared to March was the strongest monthly gain in 13 years. The strongest increases came in California and the Southwest.

Blitzer said last week's comments from the Federal Reserve that it may begin tapering bond purchases as early as this year and the resulting sharp increase in Treasury yields sparked fears that rising mortgage rates will damage the housing rebound.

"Home buyers have survived rising mortgage rates in the past, often by shifting from fixed rate to adjustable rate loans," Blitzer said in a statement. "In the housing boom, bust and recovery, banks' credit quality standards were more important than the level of mortgage rates. The most recent Fed Senior Loan Officer Opinion Survey shows that some banks are easing credit restrictions. Given this, the recovery should continue."

Zillow's chief economist Stan Humphries said the S&P/Case-Shiller numbers may reflect where the housing market has been in some of the frothier metros, "but they are not indicative of where it's headed."

"The housing market worm has turned over the past few weeks – inventory levels are beginning to show signs of easing, and mortgage interest rates are creeping up. Going forward, both of these factors will help mitigate extreme price spikes caused by very strong housing demand and very low housing supply," said Humphries.

Overall, the national housing recovery is "strong and sustainable," Humphries said, but there will be pockets of volatility.

"Buyers expecting home values to continue rising at this pace indefinitely may be in for a shock," he said.

Another report showed improvement in the manufacturing sector.

American businesses stepped up their orders for long-lasting manufactured goods in May, according to the Commerce Department. Durable goods orders last month rose 3.6 percent, matching April's gain. Most of the increase was due to a surge in commercial aircraft orders, which tend to fluctuate sharply from month to month. Still, businesses also ordered more computers, communications equipment, machinery and metals.

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