WASHINGTON Sales of new U.S. single-family homes surged to the highest level in nearly 1-1/2 years in May, benefiting from a dearth of previously owned homes available for sale.

New home sales jumped 12.2% to a seasonally adjusted annual rate of 763,000 units last month, the highest level since February 2022, the Commerce Department said on Tuesday.

April's sales pace was revised down to 680,000 units from

the previously reported 683,000. Economists polled by Reuters had forecast new home sales, which account for a small share of U.S. home sales, slipping to a rate of 675,000 units.

Sales shot up 20.0% on a year-on-year basis in May. New home sales are counted at the signing of a contract, making them a leading indicator of the housing market. They, however, can be volatile on a month-to-month basis.

The housing market has likely found a floor and could be even improving. Data last week showed homebuilder confidence rising into positive territory in June for the first time in 11 months. Housing starts surged in May as supply remains tight, while home resales edged up.

Economists say the signs of revival in the housing market suggested the Federal Reserve would need to keep raising interest rates. The housing market has been the biggest causality of the U.S. central bank's fastest rate hiking cycle since the 1980s. The Fed, which has raised its policy rate by 500 basis points since March 2022, has signaled two more rate increases this year to cool demand in the overall economy.

The increase in sales last month was despite mortgage rates resuming their upward trend. The average rate on the popular 30-year fixed mortgage was higher in May relative to April, rising to 6.57% by the last week of the month, according to data from mortgage finance agency Freddie Mac.

New home sales posted double-digit growth in the Northeast, South and West. They rose 4.1% in the Midwest.

The median new house price in May was $416,300, a 7.6% drop from a year ago. There were 428,000 new homes on the market at the end of last month, down from 432,000 in April. At May's sales pace it would take 6.7 months to clear the supply of houses on the market, down from 7.6 months in April.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)