WASHINGTON – Americans stepped up purchases of new homes in August after cutting back in July, suggesting that higher mortgage rates are not yet slowing the housing recovery.
Sales of new homes increased 7.9 per cent last month to a seasonally adjusted annual rate of 421,000, the Commerce Department said Wednesday. That comes after sales plunged 14.1 per cent in July to a 390,000 annual rate.
The rebound in sales could ease worries that higher mortgage rates have started to dampen sales. It coincided with the best month of sales for previously occupied homes in more than six years. And homebuilders remain more confident in the market than they’ve been in eight years.
Still, some buyers may be racing to close deals before rates rise further. The average rate on the 30-year fixed mortgage has risen more than a full percentage point since May.
New-homes sales were 12.6 per cent higher in August than a year ago, although the pace remains well below the 700,000 consistent with a healthy market.
The number of new homes available for sale rose 3.6 per cent from July to 175,000. That’s still relatively lean — at the August sales’ pace it would take five months to exhaust the supply.
The median price of a new home sold in August fell 0.7 per cent from July to $254,600.
Sales rose in all but one region of the country in August, increasing 19.6 per cent in the Midwest, 15.3 per cent in the South and 8.8 per cent in the Northeast. Sales plunged 14.6 per cent in the West, the second straight month of double-digit declines.
The housing market has been one of the strongest performers this year in an otherwise sluggish economy, helped by steady job gains, low mortgage rates and a limited supply of available homes for sale.
Sales of previously occupied homes rose in August to a seasonally adjusted 5.5 million annual pace, the National Association of Realtors reported last week. That’s a healthy level and the highest in more than six years.
The realtors’ group cautioned that the August pace could represent a temporary peak. The gain reflected closings and largely occurred because many buyers rushed to lock in mortgage rates in June and July before they increased further. The Realtors said buyer traffic dropped off noticeably in August, likely reflecting the higher rates.
Many economists say the housing recovery should withstand the recent rate increase. Mortgage rates are still quite low by historical standards. The average rate on a 30-year fixed mortgage was 4.5 per cent last week.
Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to National Association of Home Builders.