updated 6/24/2005 10:37:22 AM ET 2005-06-24T14:37:22

Sales of new homes in May climbed to the second highest level in history, but the median sales price fell sharply, the government reported Friday.

Major Market Indices

The Commerce Department said that sales of new single-family homes rose by 2.1 percent last month to a seasonally adjusted annual rate of 1.3 million homes. But the median sales price dropped 6.5 percent to a median $217,000, the point at which half the homes sold for more and half for less.

The housing market has been red-hot this year with demand being driven by mortgage rates that have hovered near historic lows. However, the surge in demand has raised concerns that a speculative fever is creating a housing bubble similar to the stock market bubble that burst in early 2000.

The strong new home sales followed a report Thursday that sales of previously owned homes totaled 7.13 million units at an annual rate in May, a slight decline from the record April pace, but still the second fastest sales rate on record for existing homes. The median sales price of existing homes continued rising in April to hit a record of $207,000.

The increase in sales of new homes was led by a 22.9 percent jump in sales in the Midwest, which rose to an annual rate of 268,000 units. Sales were also up in the West, rising by 1.7 percent to an annual rate of 361,000 units. However, sales fell by a sharp 24.5 percent in the Northeast to an annual rate of 74,000 units. Sales were also down in the South by 0.8 percent, to an annual rate of 595,000 units.

In other economic news Friday, the Commerce Department said orders to U.S. factories for big-ticket manufactured goods shot up at the fastest pace in 14 months in May, reflecting a huge jump in demand for commercial aircraft.

Orders for durable goods rose by 5.5 percent last month to total $210.7 billion. The gain far exceeded the 1.9 percent increase that economists had been expecting, but the strength was concentrated in demand for commercial aircraft, where orders more than doubled from their April level.

Excluding the volatile transportation sector, new orders for durable goods fell by 0.2 percent last month, marking the third decline in the past four months for orders outside of transportation.

The 2.1 percent increase in sales of new homes in May was much better than the 0.3 percent increase that analysts had been forecasting. However, April sales were revised significantly lower to show a decline of 0.1 percent rather than an original estimate of a 0.2 percent increase.

The sales pace of 1.3 million units was surpassed only by a 1.31 million unit sales pace hit last October.

The 6.5 percent drop in the median sales price for a new home marked the second decrease in the past four months. New home prices hit an all-time high of $237,000 in February.

The reports this week on new and existing home sales come at a time when analysts are worried that the housing market in some parts of the country is being driven by speculative fever.

Federal Reserve Chairman Alan Greenspan has talked of “froth” in local markets that have seen sizable run-ups in prices over the past year. He has also expressed concerns that home buyers are using types of mortgages that let them purchase more expensive homes with less of a downpayment, leaving them vulnerable if prices do fall sharply.

In the orders report, demand for non-defense capital goods excluding aircraft fell by 2.3 percent in May, the biggest drop since last October. This category is closely watched for signs it can give of business plans to invest in new equipment to expand and modernize.

Economists have grown worried about whether manufacturing, the hardest hit sector in the 2001 recession, could be showing signs of faltering again as businesses grow more cautious in the face of a renewed surge in oil prices.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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