Back to the housing market, in August new home sales in the United States jumped. This jump was the greatest rate of increase in three years. US Census Bureau has released some remarkably good new single-family home sales numbers. They soared up 20.5%, hitting an annualized rate of 800,000 units. Whatever the reason, this recent improvement feels like a combination of the boost from the recent drop in mortgage rates and an overall shift in market conditions.
Builders have increased incentives to boost buyer confidence and attract reluctant buyers. That news came to light with data made public on Wednesday. In turn, new home sales unexpectedly skyrocketed, signaling a dramatic housing market pivot that went above and beyond economists’ forecasts.
This week, Chen Zhao, Redfin’s head of economics research, highlighted the positive trend in new home sales. He thinks it is a sign of broader reaction to declining mortgage rates. He continued by underscoring that these numbers could be an indication of pent-up demand, likely in the housing market.
“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.
Of course, new home sales are based on contract signings rather than closings. This strategy can lead to rapid swings in the published numbers. Nancy Vanden Houten, a lead US economist at Oxford Economics, cautioned that the increase in sales “likely overstates any improvement in housing activity.”
This is against the backdrop of the average rate on the 30-year mortgage declining this month. That’s creating a historic rush to market. Thomas Ryan, a North America economist at Capital Economics, stated that this ongoing decline in borrowing costs could stimulate even more activity in new home sales in the months ahead.
Fellow economists have different visions of what the data spell for our future. Analysts at Wells Fargo are cautioning investors to not get ahead of themselves. As they point out, new home sales get revised often and drastically. Their projections indicated a clearer, more sustainable trend in sales is expected to take hold.
“Take the gain with a huge grain of salt,” – economists at Wells Fargo.
In fact, new homes only account for around 14% of total home sales in the US right now. This context highlights the importance of understanding the limitations of these figures and their impact on the overall housing market. That recent jump is significant too, as it represents the sharpest increase since that early 2022 period and far surpasses economists’ expectations.
