New home sales rise again, but questions still remain about housing marketÕ health

October sales up nearly 19% over last year

In a sign that there’s still room to grow for the housing market, new home sales climbed significantly over last year’s totals for the second month in a row, a new report shows.

The report, from the U.S. Census Bureau and the Department of Housing and Urban Development, showed that sales of new single-family houses in October 2017 rose to a seasonally adjusted annual rate of 685,000.

That’s up 6.2% from the revised September rate of 645,000, and 18.7% above the October 2016 estimate of 577,000.

The news shouldn’t come as a total shock, given the recent trends in new homes.

The previous month’s unrevised report showed that sales of new homes climbed 18.9% from August to September and up were up 17% from the same time period last year. The increase marked the fastest pace of home sales in 10 years.

Additionally, new home construction and homebuilder confidence are both on the rise, signaling some confidence in the market.

The most recent report on new home construction showed that construction of new homes increased in October, with privately-owned housing starts increasing to a seasonally adjusted annual rate of 1.29 million, up a full 13.7% from September.

Given the recent uptick in demand, homebuilders are showing increased confidence as well.

The latest Housing Market Index from the National Association of Home Builders and Wells Fargo showed that Builder confidence increased two points to an index level of 70 in November, which is the second highest since July 2005 and highest report since March.

This newest new home sales report also showed that the median sales price of new houses sold in October 2017 was $312,800, while the average sales price was $400,200.

The report also showed that the seasonally-adjusted estimate of new houses for sale at the end of October was 282,000, which represents a supply of 4.9 months at the current rate of sale.

But as several analysts noted, the news isn’t as ideal as it appears.

“Here’s hoping that two surprisingly strong months in a row of new home sales is a sign of things to come from builders as we look ahead to 2018,” Zillow Chief Economist Svenja Gudell said in a statement.

“There is much to be encouraged about by October’s numbers: Inventory is up, prices came down somewhat from highs set earlier this year and the bulk of sales activity was in the relatively affordable $200,000-$400,000 price segment. To date, the number of new homes built each year has remained well below historical norms – and it’s been concentrated in more profitable, higher price segments,” Gudell continued.

“That dynamic is hopefully starting to change for a simple reason: The market is starving for affordable new homes, and builders cannot and will not ignore this hungry market. Still, it won’t be easy for builders rocked by difficult market conditions,” Gudell added.

“Land, labor and lumber prices are only expected to keep rising, which will force those builders looking to meet market demand to search for less expensive development options farther away from urban job cores,” Gudell concluded. “In 2018, aging millennials and young families may be able to find more affordable new homes for sale, but they’ll most likely be in farther-flung suburbs that so far haven’t proven especially attractive to picky younger buyers.”

Building more housing, and doing it quickly, is key, according to Quicken Loans Executive Vice President Bill Banfield.

“Especially given the increase in the number of properties sold in which construction hadn’t yet started, we should feel confident that residential building will accelerate in coming months,” Banfield said. “That said, the high average selling prices pose a hurdle for younger homebuyers entering the market for the first time. A stable job market and sustained low mortgage interest rates continue to increase property prices.”

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