The numbers: Sales of new homes in the U.S. rebounded in July after three consecutive months of declines.

New-home sales increased 1% to an annual rate of 708,000, the government said Tuesday. The figure equates to how many homes would be sold over a yearlong period of time if the same number were bought in each month based on the rate of sales in July. Compared to a year ago, sales were down more than 27%.

The median price of a newly built home reached $390,500, a record high for the report.

The report exceeded expectations, as economists polled by MarketWatch had forecast an annual sales rate of 700,000 for July. Additionally, the new home sales figure for June was revised upward to 701,000 from the initially reported 676,000.

Unlike the existing-home sales report, the new-home sales report from the U.S. Census Bureau captures sales when the contract is signed rather than when the sale is closed.

What happened: Sales rates varied nationally, with the Northeast and Midwest seeing declines of more than 20% compared to last month, while the West posted a 14% gain and the South a 1.3% uptick.

The number of new homes for sale at the end of July increased 5.5% from the month prior and 26% from a year ago. The inventory in July equated to a 6.2-month supply, representing the highest level in over a year.

The median price of a newly built home reached $390,500, a record high for the report.

The big picture: A truly meaningful, sustained increase in new home sales remains unlikely, due to the supply chain issues builders continue to face. While the price of lumber may no longer be in the stratosphere, the sheer demand for home-building and home improvement projects continues to make the necessary supplies and labor hard to come by.

Nevertheless, the improvement in new home sales in July is a welcome sign for a market that’s starved for inventory. “It is promising that the overall trend in home sales is up from prior years and that the recent drop in sales has begun to reverse,” said Kelly Mangold, a principal with RCLCO Real Estate Consultants. “This means that new home deliveries are coming closer to matching the demand generated by household growth.”

The current supply crunch in the market is a reflection of under-building that followed the Great Recession. Builders would need to increase the pace of home construction considerably to close the gap the country continues to face between housing demand and supply.

What they’re saying: “Buyers embraced new homes over the past year due to a historically-low inventory of existing homes, and shifting preferences for larger homes, backyards, and suburban neighborhoods. However, the spring spike in lumber costs pushed the price tag of new homes to a record high of nearly $400,000 in May, putting new construction out of budget for many buyers,” said senior economist George Ratiu.

Market reaction: The Dow Jones Industrial Average

and S&P 500 index

inched higher in Tuesday morning trades.

Major home-builder stocks such as D.R. Horton
Lennar Corp.

and PulteGroup
saw larger increases than the broader market following the new home sales report’s release.

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