The latest reports on the national housing market show that US new home sales saw a somewhat unexpected increase in August.
The Initial Housing Market Forecast vs August Numbers
When polled by Reuters, economists and experts believed that US new home sales would see a rise. However, they forecasted an increase of 3.5% to a rate of 635,000 single-family units. The Commerce Department reports that these initial estimates were modest compared to the August sales which increased by 7.1% to a rate of 713,000 units.
Compared to this time last year, new home sales are up 18%. The median new house price is also up by 2.2% from August 2018 to $328,400.
The Southern and Western real estate markets are the regions that saw the highest jumps. The South (which accounts for the majority of real estate transactions in the housing market) saw an increase of 6% for new home sales in August. Western sales saw a whopping 16.5% increase. While these two regions caused a rise, new home sales actually fell in the Northeast (by 5.9%) and in the Midwest (by 3%).
In terms of the August new housing inventory, there were 326,000 new homes for sale on the market. This was actually a drop of 1.2% from July and the lowest since September of 2018. With the pace of US new home sales in August, the months of supply was 5.5, down 5.9 from July.
Reasons for the Increase in US New Home Sales
Even though initial housing market predictions didn’t forecast such a high rise, there are a few clear reasons as to why this trend has occurred. For one, the Federal Reserve cut interest rates at the end of July and naturally, this impacted the US housing market. The 30-year fixed mortgage rate is averaging 3.73% which, according to Freddie Mac, is a drop of 120 basis points from last year’s high rates. And as mortgage rates drop, more and more homebuyers and real estate investors begin to enter the market as acquisition costs become more affordable.
In addition to a drop in mortgage rates, there is a shortage in housing supply across the US. Because of this, property buyers turn to homes that are either in construction, to be built, or newly constructed for more options. As a result, US housing starts and building permits saw a sharp increase and rose past a 12-year high last month. At the same time, home resales actually rose to the highest they have been in 17 months.
What This New Housing Market Data Means for 2019 and 2020
While these initial reports are subject to adjustments down the line, it is clear that US new home sales activity is up in the 2019 US housing market and is likely to continue into the beginning of 2020 considering the causes behind the rise. After predictions that the housing market would continue to soften, it seems that the drop in mortgage rates has given buyers the boost they need.
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