U.S. new home sales beat expectations; supply increases

September 24, 2021

By Lucia Mutikani

WASHINGTON (Reuters) -Sales of new U.S. single-family homes increased for a second straight month in August, but demand for housing has probably peaked after a COVID-19 pandemic-fueled buying frenzy.

New home sales rose 1.5% to a seasonally adjusted annual rate of 740,000 units last month, the Commerce Department said on Friday. July’s sales pace was revised up to 729,000 units from the previously reported 708,000 units.

Sales increased 6.0% in the populous South and gained 1.4% in the West. They soared 26.1% in the Northeast, but tumbled 31.1% in the Midwest. Economists polled by Reuters had forecast new home sales, which account for a fraction of U.S. home sales, increasing to a rate of 714,000 units.

Sales decreased 24.3% on a year-on-year basis in August. They have struggled to post significant gains since surging to a rate of 993,000 units in January, which was the highest since the end of 2006.

The median new house price shot up 20.1% to $390,000 from a year ago. Prices were unchanged on a monthly basis.

The coronavirus pandemic sparked an exodus from cities as Americans worked from home and took classes online. That boosted demand for bigger homes in the suburbs and other low-density areas, which far outpaced supply, causing bidding wars.

But demand has likely peaked. A report from the National Association of Realtors on Wednesday showed sales of previously owned homes fell in August, with house prices continuing to moderate sharply after posting record increases in May.

Some sellers are reducing their asking prices and consumer sentiment towards buying a home has shifted.

Demand for housing could cool after the Federal Reserve said on Wednesday it would likely begin reducing its monthly bond purchases as soon as November and signaled interest rate increases may follow more quickly than expected.

Still, the fundamentals for the housing market remain strong. A tightening labor market is lifting wages. The new housing market remains underpinned by an acute shortage of previously owned home.

Last month, new home sales remained concentrated in the $200,000-$749,000 price range. Sales in the under-$200,000 price bracket, the sought-after segment of the market, accounted for just 3% of transactions.

There were 378,000 new homes on the market in August, up from 366,000 in July. Homes yet to be built accounted for 27.8% of supply. Houses under construction made up 62.7%.

At August’s sales pace it would take 6.1 months to clear the supply of houses on the market, up from 6.0 months in July. About 78% of homes sold last month were either under construction or yet to be built.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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