Economists have been waiting for the housing market to show consistent strength and help to drive America's economic recovery. Even though wages have been relatively stagnant, it is hoped that continuing gains in the job market and the long period of low mortgage rates will spur home sales. According to numbers recently released by the Commerce Department, the housing market may be gaining some momentum at long last.
New home sales in August rose by 5.7%, corresponding to a seasonally adjusted annual rate of 552,000. That is the fastest pace since February 2008, as the Great Recession was just beginning to take effect. The August rate blew past economist's estimates of 515,000.
Meanwhile, seasonally adjusted July numbers were revised up from 507,000 to a robust 522,000. When added to the July revisions that give July a 12% increase over June, the August new home sales are giving analysts hope that lasting momentum has finally arrived.
New home sales numbers are generally volatile and prone to revision, but in the broader view, the numbers still paint a positive picture. Over the past year, sales of new single-family homes have increased by almost 22%. Stephen Stanley of Amherst Pierpont Securities considers the August data a sign of "robust momentum in new home sales" and suggests that the strong numbers may continue because weather-based delays in home building earlier in the year could extend the home building season as customers try to beat the next round of winter weather — and possibly higher mortgage rates in the near future.
Combined with stronger sales of existing homes, which have finally returned to pre-recession levels, things are finally looking up for the housing market as a whole. That was reflected in the most recent homebuilder sentiment numbers from the National Association of Home Builders (NAHB), which were the highest in almost ten years. This time, the optimism has some numbers to back it up.
New homes are vital to the overall economic recovery in several ways. Direct effects include increased construction jobs and consumption of building materials, while indirect effects include spending on furniture, appliances, and other home necessities. The trickle effect from housing is significant.
New homes are also desperately needed to rebalance the market and drive down rapidly rising prices. There has been a significant shortage of affordably priced homes on the housing market, new or otherwise. Existing starter homes have been hard to find, as homeowners have been slow to upgrade their housing situation, whether it is from an inability to afford an upgrade because of stagnant wages or an inability to find an upgraded home that meets their needs. At the end of August, there was only a 4.7-month supply of new homes on the market, well below the 6-month supply of a healthy housing market.
Rising prices and limited supply have been keeping aspiring new homeowners from taking advantage of the unusually long-lasting low interest rates, so it is critical that the new housing momentum continues before rates finally rise. Homebuilders are rising to meet the challenge. According to The Wall Street Journal, many homebuilders have registered "steady, year-over-year sales gains in the low double-digit percentages."
Ironically, the strength in the housing market may be the catalyst that finally causes the Federal Reserve to raise interest rates and spur higher mortgage rates. If you are considering buying a home, the current environment may be one of your best opportunities — assuming you can find a home that you like or can afford to have one built.
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