The sales of new homes unexpectedly rose in May as unsold homes fill the market.

Purchases rose by 4.6% in May to an annual rate of 1.234 million, said the Commerce Department on Monday. There were 556,000 homes for sale at the end of May, up from a record 560,000 the month before.

Many builders are offering incentives, such as free country club memberships, to bring buyers in during rumors of a slowing market.

The gains in sales seems to confirm the Federal Reserve forecast that the market slowdown will not be abrupt, but a leveling out of the market. Policy makers are expected to continue on with rate increases throughout the upcoming months.

"We are surprised at the resilience of home sales over the last three months, and these data suggest that any near-term economic slowing from the housing market is likely to be fairly limited," said John Ryding, economist at Bear Stearns & Co. in New York.

Homebuilder shares rose after the report -- the S&P index of 16 builders increased 21. 5 points, or 3.5% this morning.

Purchases were forecasted to slow in May, according to a Bloomberg News survey.

The number of unsold new homes decreased to a 5.5 months supply given the increased May sales pace. The median price of a new home increased 3.1% in May, up to $235,300.

Sales were increased in the South, West and Midwest. The Northeast saw a decline in home purchases by 7.9%. New home sales accounted for 15% of sales nationwide.

Home construction rebounded in May, rising 5%. Builders reportedly worked on backlogged orders. Building permits are used as a sign of future construction; they were down for the fourth straight month.

New home sales are considered by economists as a leading indicator of the housing market.

"Although a slowing in housing is apparent in a wide range of indicators, it seems to be occurring in a gradual way," said Fed Governor Susan Bies.

Martin Lukac represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com, a finance web-company specializing in real estate and mortgage rates. We specialize in daily updates, mortgage news, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies! Article Source: http://EzineArticles.com/?expert=Martin_Lukac