Sales of new homes in the U.S. unexpectedly advanced for a fourth month in August to the highest level in almost 14 years as record-low mortgage rates continued to entice buyers into a market with ever-shrinking supply.
Purchases of new single-family houses increased 4.8% to a 1.01 million annualized pace, led by a flurry of demand in the South, after an upwardly revised 14.7% surge in July, U.S. Department of Commerce data showed Thursday. New-home sales are now up 43.2% from this point last year.
The median selling price decreased from a year earlier to $312,800 and the number of homes for sale dropped to an almost three-year low. Economists expected an 890,000 pace, according to the median estimate in a Bloomberg survey.
"The August figure is the first reading above 1 million since 2006, so both new and existing home sales registered their best results since 2006 in August," wrote Stephen Stanley, chief economist at Amherst Pierpont. "The level beat expectations by over 100K."
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The rapid spread of covid-19 infections in the U.S. this spring quashed sales, but not demand. The pace picked back up in the summer, driving home prices in many places to record highs.
The data are the latest to highlight momentum in the housing market, driven by low borrowing costs and a desire for new property during a pandemic that's led to many more Americans working from home. It's difficult to gauge how long such robust demand will last, given the scale of layoffs and the potential for future job cuts without another federal aid package.
The annual rate of sales in the past four months has increased more than 77%, the most for a comparable period since 1980.
Sales rose in two of four regions led by the South -- the largest region -- where purchases surged 13.4% to the highest level since 2005. Demand also increased in the Northeast.
The supply of new homes continued to fall. At the current sales pace, it would take 3.3 months to exhaust the supply, the shortest time frame in records dating to 1963.
The 4.3% decline in the median selling price from a year ago reflected the composition of homes sold. Some 34,000 properties priced from $200,000 to almost $300,000 were sold, the most in records back to 2002. Meanwhile, fewer properties in the higher end changed hands.
It's the same picture for backlogs: The number of properties sold for which construction hadn't yet started jumped to 342,000 in August, also the highest since 2006 and a sign builders will be busy for months to come.
Buyers are opting for new homes as fewer homeowners seek to sell their own properties. Mortgage rates are set to remain at historically low levels amid stimulative Federal Reserve monetary policy aimed at shoring up economic activity.
Other figures corroborate the high demand for real estate. Existing-home sales strengthened in August to the highest pace since the end of 2006, following a record jump in July. Homebuilder optimism is also at an all-time high, reflecting strong current sales, the demand outlook and increased prospective buyer foot traffic.
Many, however, do not see the gains over the past several months as sustainable. The last time the pace of sales was this strong marked a peak in the market and preceded the worst economic calamity in the U.S. since the Great Depression.
"While strong demand and lower mortgage rates are supportive of further growth in sales, the slow recovery and weak labor market pose downside risks that we expect will weigh on home sales in the months ahead," said Nancy Vanden Houten, lead U.S. economist for Oxford Economics.
Mortgage rates rose slightly this week, according to a Freddie Mac report released Thursday.
The average 30-year fixed rate reached 2.90%, up from 2.87%, with an average 0.8 point. (A point is a fee that borrowers pay, in addition to the interest rate, that equals 1% of the loan.) The rate was 3.64% a year ago.
The 15-year fixed-rate average reached 2.40%, up from 2.35%, with an average 0.7 point. It was 3.16% a year ago. The five-year adjustable-rate average reached 2.90%, up from 2.96%, with an average 0.2 point. It was 3.38% a year ago.
Even with the tick up, rates are near historic lows.
There are numerous factors that play into whether a buyer will get a higher or lower rate a given week: Federal Reserve policies, the stock market and other economic indicators, and the yield on 10-year Treasury notes. Consumers with lower credit ratings tend to pay higher rates and lenders often raise rates when the volume of applications gets too heavy for them to handle.
Information for this article was contributed by Katia Dmitrieva of Bloomberg News, by Ken Sweet of The Associated Press and by Michele Lerner of The Washington Post.