New homes are in demand

In an unexpected but welcome shift, new-home sales of single-family homes surged in September to the highest levels in nearly a decade.

Improving economy leading to increased demand

In fact, new-home sales rose 18.9 percent in September to a rate of 667,000, up from August’s upwardly revised rate of 561,000 units.  That’s according to a joint release from the U.S. Census Bureau and the Department of Housing and Urban Development.

The brisk clip of new-home sales was also 17 percent higher year-over-year. It’s also the highest sales rate since October 2007.

Other reasons for the expansion in new-home sales: ongoing job growth and improving household formations, says Robert Dietz, chief economist with the National Association of Home Builders.

Despite some volatility in the monthly sales this year, September marks the fifth month in 2017 new homes are selling at an annual pace of more than 600,000 units.

New-home sales defy expectations

The recent data signals a notable turnaround in the housing market’s performance as of late.

In recent months, the market has stalled due to severe resale inventory shortages and steep price increases. As a result, many analysts had predicted a continued slide in overall home sales.

But, now, they seem to be defying expectations and buying new construction. Builders clearly have the antidote for a woefully understocked and overpriced existing resale market, but can they keep up with the demand?  in inventory have increased by 15 percent year-over-year as of September.

Although completed newly-built homes have seen a smaller gain of 5 percent since this time last year, building permits have increased 24 percent over the same time period, Dietz says.

The sooner builders can finish new homes, the better for aspiring home buyers who are likely to see little change in resale inventory levels.

Builder confidence surges, too

Hurricanes Irma and Harvey dampened builders’ optimism in recent months. But now, they’re seeing a light at the end of the tunnel.

Builder confidence rose four points to a level of 68 in October — the highest level since May — on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

Modest gains are expected in new-home sales and building in the months ahead, but Dietz says it’s “encouraging” to see builders have a rosier outlook on the market.

All said, however, “builders need to be mindful of long-term, regional impacts from the storms, such as intensified material price increases and labor shortages,” Dietz says.

All three HMI components gauging current sales, sales in the next six months and buyer traffic, rose in October. Builders’ perception of current sales and sales in the near future posted the strongest gains.