NEW YORK (CNN/Money) - New home sales jumped to a record high last month, the government said Thursday, the latest report of surprising strength in the housing market despite rising mortgage rates.
The Commerce Department reported new home sales rose to an annual rate of 1.37 million in May, up nearly 15 percent from a revised annual rate of 1.19 million in April.
Economists surveyed by Briefing.com forecast sales at a rate of 1.13 million new homes, up from the previous April reading of 1.09 million.
Mortgage rates have risen steadily since nearing 40-year lows in March, although they have retreated slightly in recent weeks.
But rates are still historically low and the improving job market has given a boost to the housing market despite the gradual rise in rates.
"The bottom line is that, with employment and income gains picking up, it will take mortgage rates a lot higher than 6.24 percent to choke off housing demand. We will probably get to a level of rates that bites eventually, but certainly not in the next few months," said Steve Stanley, economist with RBS Greenwich Capital.
"This pace is clearly unsustainable," he said, noting that strength in mortgage applications for home buying has held up well, a sign that any dip in home sales "is more likely to be moderate rather than precipitous."
Some of the increase is apparently from people who rushed to buy before rates climb any higher, said Jason Schenker, economist with Wachovia Securities.
He said that new home sales are recorded at the time a sales contract is signed, while existing home purchases are recorded when the sales are closed. That means existing home sales are likely to see a similar jump in a month or two as purchases are completed.
The record sales pace led to a reduction in new homes on the market, bringing the supply down to 3.3 months, according to the department's report. That would mark the tightest supply of new homes on the market since the government started tracking that measure.
Despite tight supply, the median price of a new home fell to $198,400 in May from $218,000 in April. Half the homes sold above the median and half sold below it. The average price also fell to $256,700 from $262,500.
Drew Matus, economist with Lehman Brothers, speculated that builders could be reacting to higher mortgage rates by shaving prices in a bid to keep housing affordable.
Buyers could also be buying homes with less extra features for the same reason, which could also reduce the housing prices.
While new home sales reflect only a fraction of overall home sales in the country, the report is closely watched for its economic impact.
Besides the spur to employment from new home building, new home sales typically spur sales of appliances and home furnishings.
Sales rose in each region except the Midwest, where sales were flat compared to April.
The Northeast saw a 53 percent jump in new home sales in May. Sales rose 20.3 percent in the South and 6.5 percent in the West.