The Economy

New Home Sales Surge 12.4% to 9-Year High

The U.S. housing market continues to be a bright spot for the economy amid historically low mortgage interest rates.
Matthew HellerAugust 23, 2016

New home sales in the U.S. rose sharply last month to their highest level in nearly nine years, as the housing market showed continuing strength that could augur well for economic growth in the third quarter.

Sales of new single-family houses increased 12.4% in July to a seasonally adjusted annual rate of 654,000 units last month, the Commerce Department said Tuesday. It was the highest level since October 2007 and the fifth straight monthly gain.

While new-home sales figures are usually volatile, economists noted that sales in July were up 31.3% from a year ago. With sales well above their second-quarter average, the housing market is showing sustained momentum.

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“The year-over-year change is statistically significant, indicating the surge in sales can be taken with more than just a grain of salt,” Ralph McLaughlin, chief economist at Trulia, told USA Today.

As The Wall Street Journal reports, the housing market has been a bright spot in the economy this year, reflecting historically low mortgage interest rates, improving income growth and steady job creation. The average rate for a 30-year fixed rate mortgage was 3.48% at the end of July, down a half-percentage point from a year earlier, according to Freddie Mac.

The July gain “came mostly from homes not yet started or still under construction, suggesting a rebound in residential construction investment, which was a minor drag on economic growth in the second quarter,” Reuters said.

Reports last week showed groundbreaking on single-family housing projects rising to a five-month high in July and sentiment among homebuilders increasing in August.

With sales surging, the inventory of new homes on the market fell to an eight-month low in July. At July’s sales pace it would take 4.3 months to clear the supply of houses on the market, the fewest since June 2013, and down from 4.9 months in June.

“This marginally raises our near-term outlook for the housing market, as tightness in the new home market suggests further impetus to new construction ahead,” Andrew Hollenhorst, an economist at Citigroup, told Reuters.