The annual pace over the last three months is tracking at 1 million units — 25% ahead of the prior seven months.
By Manuel Gutierrez, Consulting Economist to NKBA
The housing market continues to smash records and has been doing so for more than a decade. Just last week, new reports revealed that housing starts and sales of existing homes in October increased by nearly 5%.
This week, even though new home sales fell by a negligible 0.3% in October, they are tracking at an annual rate of 1 million —a pace reached in each of the last three months.
The chart below shows what can be called a new high plateau in home sales. The current annual sales pace of 1 million units is 25% higher than for the first seven months of this year.
Year-to-date, 703,000 new homes have been sold through October, 21% above the same period last year. Year-to-date sales have been higher every year since 2011, when they bottomed following the 2008-2009 economic recession.
New home sales have benefited from government restrictions following the COVID-19 pandemic, which have increased the amount of time people are forced to spend at home, and inspired many to move from densely populated urban centers and crowded apartment buildings to single-family homes in more suburban areas.
The favorable impact of these restrictions has been further boosted by increasingly lower mortgage rates. The 30-year fixed rate on mortgage loans, which is the most common, has now fallen virtually every week for more than a year. The rate now stands at 2.72%. Given the current monetary policy, which has involved a steady pumping of more money into the system, mortgage rates could continue to fall further in the near future.
This is, of course, good news for borrowers but not for consumers who may depend on interest earned from savings.
Regional Sales Are Split
While new home sales rose in two regions, the Northeast and the Midwest, they fell modestly in the South and West.
Sales in the Northeast and the Midwest rose substantially in October, but they did not have a large impact on the national numbers since combined, they contribute only 15% of total U.S. sales. Sales in the South fell by a modest 2% to 580,000 units, but they accounted for 58% of October’s national sales. Similarly, the West’s sales fell by a nominal 1% to 269,000 homes — but this still accounts for more than a quarter of U.S. sales.
A low inventory of homes on the market continues to plague the housing sector, but unlike the existing homes segment, which depends on homeowner decisions to move and put their houses up for sale, builders have some flexibility. They can react to changes in demand by building more homes or selling new homes before they are built.
Not surprisingly then, there has been an increase in the proportion of new homes sold but not yet built. In October, it rose to 39% of all new homes sold, which, as seen in the chart below, is nearly double the percentage from just five months earlier.
