WASHINGTON -- Americans stepped up their purchases of new homes in July to the fastest pace in nearly nine years, the latest sign that low mortgage rates and a solid job market are helping support the residential real estate market.
New-home sales jumped 12.4 percent last month to a seasonally adjusted rate of 654,000 annual units, the strongest level since October 2007, the Commerce Department said Tuesday. The demand has eclipsed the pace of construction. Just 4.3 months' supply of new homes is available on the market, down from 5.2 months a year ago.
The increase "makes perfect sense when interest rates are low, credit continues to ease, and the consumer is in decent shape given the jobs market," said Brett Ryan, U.S. economist at Deutsche Bank Securities Inc. in New York. "You're seeing finally that builders are responding with more supply, and that's been one of the big problems in the current cycle."
Construction of single-family houses has picked up this year as the market has extended its recovery from the drop-off caused by the housing meltdown that began nearly a decade ago. Sales in July roughly matched the long-standing pace of 650,000 new homes selling each year. As the job market has strengthened and mortgage rates have settled near all-time lows, more buyers have been drawn to new developments and properties.
"We see tremendous growth potential in new-home sales as housing demand continues to grow and the continued supply shortage of newer vintage homes," said Tian Liu, chief economist at Genworth Mortgage Insurance.
The improved sales of both new and previously owned homes has supported the broader U.S. economy, which is still hampered by a global slowdown and weak worker productivity. Sales of previously owned homes reached a seasonally adjusted annual rate of 5.57 million in June, the best performance since early 2007.
Construction companies have added 215,000 jobs over the past 12 months. Over the same period, sales have risen 3.5 percent at building materials stores and 4.3 percent at furnishing stores, according to the government.
Home purchases rose 40 percent in the Northeast and 18.1 percent in the South last month. They increased slightly in the Midwest and stayed unchanged in the West.
July's median sales price dipped 0.5 percent from a year ago to $294,600, a possible reflection of the regional sales mix.
So far this year, new-home sales have climbed 12.4 percent to 352,000.
Builders are increasing construction but are still running behind demand. Groundbreakings for houses have climbed 10.6 percent year-to-date, the government reported last week. This marks a sharp reversal from previous years in the recovery from the recession, when a large share of the increase in residential construction came from apartments.
Optimism abounds for many builders as well. The National Association of Home Builders/Wells Fargo builder sentiment index for August rose 2 points to 60 following a downwardly revised reading of 58 in July.
Readings above 50 indicate more builders view sales conditions as good rather than poor.
Low mortgage rates are feeding much of this confidence. Mortgage buyer Freddie Mac, the Federal Home Loan Mortgage Corp., said the average 30-year fixed-rate mortgage fell to 3.43 percent last week from 3.98 percent a year ago.
New-home sales, which account for about 10 percent of the residential market, are tabulated when contracts are signed. That makes them a timelier barometer than transactions on previously owned homes.
Information for this article was contributed by Michelle Jamrisko of Bloomberg News.
Business on 08/24/2016