New-home sales surged, up 18.6% to a 504,000 annual rate, surpassing expectations, the Census Bureau reported Tuesday.

The gains were led by the two biggest regions for new home sales, the South, up 14.2% in the month, and the West, up a very sizable 34%.

The western region was the big driver of the gains, from 97,000 to 130,000, the largest increase since February 2013.

The single-month surge in sales will make for exuberant headlines today, but the single-month gain brings the new home sales rate to about two-thirds below the pre-housing crisis rate of 1.38 million.

Much like the existing home sales report Monday, this report will result in optimistic headlines, but the devil is in the details.

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New homes on the market were unchanged in May at 189,000, but the surge in sales lowered supply relative to sales, to 4.5 months versus 5.3 months back in April.

While the median sales price of new houses sold in May 2014 was $282,000, the average sales price was $319,200.

However, overall home price gains are declining dramatically.

According to the most recent S&P/Case-Shiller Home Price Indices report, 19 of the 20 cities witnessed lower annual gains in April than in March, with California seeing its returns worsen by approximately three percentage points.

The 10-city and 20-city composites increased 1% and 1.1%, respectively, in April. Boston was the only city whose annual rate improved, moving from 8.3% in March to 9.0% in April.

“Although home prices rose in April, the annual gains weakened,” says David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices. “Overall, prices are rising month-to-month but at a slower rate." Last year some Sunbelt cities were seeing year-over-year numbers close to 30%, now all are below 20%: Las Vegas (18.8%), Los Angeles (14.0%), Phoenix (9.8%), San Diego (15.3%) and San Francisco (18.2%). Other cities around the nation are also experiencing slower price increases.

Mortgage rates are lower than a year ago, and the Federal Reserve is expected to keep interest rates steady until mid-2015 and the labor market is improving. 

Case-Shiller notes that housing is not back to normal: prices are being supported by cash sales, low inventories and declining foreclosure and REO sales.

First-time home buyers are not back in force and qualifying for a mortgage remains challenging.

The question is whether housing will bounce back before the Fed begins to tighten sometime next year.”