In the United States, sales of new single-family homes skyrocketed 20.5% in August. This jump pushed the annualized rate to an astounding 800,000 units. On Wednesday, the U.S. Census Bureau announced these numbers. That would represent the quickest rate for new home sales since the beginning of 2022. This unexpected surge comes as builders have ramped up discounts to attract buyers who have been hesitant to enter the market due to affordability concerns.
Even as increased housing supply helps alleviate some pressure on prices, lower mortgage rates are handily boosting new home sales. These rates began to retreat last month as capital markets priced in an impending interest rate reduction by the U.S. central bank. Recent fortune “largely” due to the positive effects of lower borrowing costs, said Thomas Ryan, an economist with Capital Economics in North America. Their support has been key in driving sales. He thinks this trend will continue to accelerate. If it does, then there’s good reason to look for a wave of new-home market activity in the months ahead.
“There is pent-up demand in housing, but affordability remains out of reach for many first-time homeowners,” – Eric Teal, chief investment officer at Comerica Wealth Management.
As much as the news looks good, some economists are urging a wait and see approach to the numbers. Nancy Vanden Houten, lead U.S. economist at research firm Oxford Economics, was among those voicing doubts that this boom was sustainable. She stated that the spike “likely overstates any improvement in housing activity,” highlighting that new homes account for only about 14% of total U.S. home sales.
Wells Fargo analysts warned that although the increase is a good sign, it should be taken in a positive direction. They cautioned that new home sales are notoriously revised heavily. They warned, don’t misconstrue this jump as a definitive sign that the market is rebounding. Second, they believe sales will prove to be a more even cyclical pattern. This trend is just like what has happened all year long.
The new home sales data is still based on contract signings. This basis can lead to significant swings in the published numbers. This month’s increase came in well over what economists’ expectations were. It indicates that builders are increasingly willing to offer big discounts in the form of incentive-heavy pricing plans to entice wary would-be buyers back into the market.
Chen Zhao, head of economics research at Redfin, underscored the significance of the recent upswing in new home sales. He thinks this development might be an early indication of how market participants are reacting to better mortgage market realities. With demand pretty tepid overall, as rates are still in the process of softening this will certainly be one to watch as it develops.