SILVER SPRING, Md. – Sales of new homes jumped again in July, rising 13.9% as the housing market continues to gain traction following a spring downturn caused by pandemic-related lockdowns.
The Commerce Department reported Tuesday that July's gain propelled sales of new homes to a seasonally-adjusted annual rate of 901,000, the most since 2006. That's a far bigger number than analysts had expected and follows big increases in May and June. The government report has a high margin of error, so the July figures could be revised in the coming months.
The recent sales gains followed a steep dropoff in March and April as much of the country stayed home due to government restrictions intended to slow the spread of coronavirus.
In a report last week, the National Association of Realtors reported that sales of existing homes rose by a record 24.7% in July, thanks to historically low interest rates. It was the second big spike in as many months and has helped stabilize the housing market in an otherwise uncertain economic time.
Low inventory of existing homes is pushing buyers into the new homes market, but inventory there is also shrinking. What was a 6-month supply of new homes a year ago is now down to a 4-month supply, thanks to a red-hot market.
The Commerce Department reported last week that construction of new U.S. homes surged 22.6% in July as homebuilders bounced back from a lull induced by the coronavirus pandemic. New homes were started an annual pace of nearly 1.5 million in July, the highest since February. They've now risen three consecutive months after plunging in the spring. Last month’s pace of construction was 23.4% above that of July last year.
Sales are being fueled by ultra-low mortgage rates, which earlier this month dropped below 3% for a 30-year-fixed rate mortgage for the first time in nearly 50 years. The average rate on a 30-year fixed rate mortgage is now 2.99%, the mortgage buyer Freddie Mac said Thursday. A year ago, it was 3.55%.
Economists believe low rates and changes in home preferences brought on by the pandemic will continue to support sales, though perhaps not at recent levels.
“Sales may struggle to maintain their July pace going forward," said Nancy Vanden Houten of Oxford Economics. ”While strong demand and lower mortgage rates are supportive of further growth in sales, the slow recovery and weak labor market pose downside risks."
Regionally, construction of new homes fell only in the Northeast, which saw a 23.1% decline. The Midwest saw a whopping 58.8% increase, followed by the South's 13% jump and an increase of 7.8% in the West.
The median price of a new home sold in July increased to $330,600, up 7.2% from one year ago.