In August, sales of new single-family homes in the United States shot up 20.5%. They then soared to an annualized rate of 800,000 units. This surge, reported by the US Census Bureau on Wednesday, signifies the fastest pace of new home sales since early 2022 and exceeded economists’ expectations.
This huge increase in sales points to a possible turning point in the housing market, possibly driven by falling mortgage rates. If so, this increase might foretell a new trend in buyer behavior, says Chen Zhao, head of economics research at Redfin. Or it can demonstrate the extent to which lower borrowing costs are influencing their choices.
Sales of new homes are counted upon signing of contracts, not execution of deeds. This method sheds light on upcoming housing activity. Constructors have sharpened concessions to lure prospective buyers who’ve been gun-shy in a stilted overall economy. We bet this approach is partly to thank for creating the very recent uptick in high sales numbers.
In a recently published report, Thomas Ryan—an economist with Capital Economics—examined the recent surge in new home sales. His rationale for the jump was reduced borrowing costs. Specifically, that the average national rate on a 30-year, fixed mortgage has fallen this month. This drop is largely fueled by market speculations that a cut is in the cards from the US central bank.
Despite this optimistic data, some economists are warning not to read too far into these figures. Nancy Vanden Houten, a lead US economist at Oxford Economics, expressed skepticism, stating that the jump in new home sales “likely overstates any improvement in housing activity.” New homes represent just 14% of total home sales nationally.
Eric Teal, chief investment officer at Comerica Wealth Management, used his time Monday to underscore the difficulty of finding opportunity in today’s market. He stated, “There is pent-up demand in housing, but affordability remains out of reach for many first-time homeowners.” This feeling is a refrain that screams at us that, even though sales figures look good, it’s not always an indication of a healthy market.
Wells Fargo economists called for caution, cautioning that the jump should be taken with a large grain of salt. They remarked, “Take the gain with a huge grain of salt,” and indicated that new home sales are subject to significant revisions. In fact, they think sales will even start to taper downwards. That expectation reflects the broad market conditions they have seen so far this year.