Sales of new U.S. homes climbed more than expected in July even as continued to confront high mortgage rates.
New single-family home purchases rose 4.4% to a seasonally adjusted annual rate of 714,000 units, the Commerce Department reported Wednesday. Economists surveyed by Refinitiv expected new home sales – which account for a small percentage of total sales – to come in at a rate of 705,000 units.
Sales are up about 31.5% from a year ago.
“Despite affordability being at record lows, driven by historically high mortgage rates and recovery of prices this year, the new home market has continued to gain momentum as the lack of resale inventory has turned buyers to new construction,” said Crystal Sunbury, a real estate senior analyst at RSM.
At the current pace of sales, it would take roughly 7.3 months to exhaust the inventory of existing homes. Experts view a pace of six to seven months as a healthy level.
The spike in sales indicates that buyers are still eager to buy homes, despite steep borrowing costs and elevated prices. That demand is keeping the housing market uncomfortably hot.
The median price for a new home jumped to $436,700 from $416,700 the previous month – a nearly 5% increase. That is also far higher than the typical pre-pandemic level.
The Federal Reserve’s aggressive interest-rate hike campaign sent mortgage rates soaring above 7% last year for the first time in nearly two decades, cooling the red-hot housing market.
Rates on the popular 30-year fixed mortgage are currently hovering around 7.09%, according to Freddie Mac, well above the 5.13% rate recorded one year ago and the pre-pandemic average of 3.9%.
With rates slow to retreat, sellers who locked in a low mortgage rate before the pandemic have been reluctant to sell and buy another house at a steeper borrowing price.
The lack of inventory has weighed on existing home sales, in particular.
Sales of previously owned homes fell 2.2% in July from the previous month to an annual rate of 4.07 million units, according to data released Tuesday by the National Association of Realtors (NAR).
On an annual basis, existing home sales are down 16.6% when compared with July 2022.
“Two factors are driving current sales activity – inventory availability and mortgage rates,” said Lawrence Yun, chief economist at NAR. “Unfortunately, both have been unfavorable to buyers.”