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New home sales juggernaut continues

"More sales means more construction means more sales"

Sales of new homes rose to an annualized rate of 999,000 in October – 0.3% below September’s 1,002,000 revised rate but still a massive 41.5% higher than the same time last year, according to the Census Bureau and the Department of Housing and Urban Development.

With October’s data in, new home sales have had the strongest three-month stretch since mid-2006, with each month falling just short of 1 million. However, demand has construction playing catch-up, as the estimate of new houses for sale at the end of October was just 278,000. This represents a supply of 3.3 months at the current sales rate.

While Wednesday’s report reflected the strong appeal of new homes, supply constraints will likely limit the growth of new home sales going forward, said Doug Duncan, Fannie Mae’s chief economist.

“Sales are increasingly being driven from homes not yet under construction. The share of homes sold but not yet started rose for the third straight month and now represents the highest share of total sales since 2005, while the number of fully completed homes sold hit the lowest level since the COVID-19-related shutdowns this past April,” Duncan said.

Record low mortgage rates, tightened supply and the allure of a brand new, never-lived-in home brewed a hot summer season that continued straight into Fall, said Matthew Speakman, economist at Zillow.

“Homebuilders are certainly reading the tea leaves,” Speakman said. “A measure of new home sales expectations for the next six months is at a record high.

“And more sales means more construction means more sales: A large share (38.5%, up from 28.5% a year ago) of the new homes sold in October were not yet under construction,” Speakman continued. “That means that both a good portion of last months’ housing starts — which were up almost 5% from September — very likely represent closed sales from several months ago, and that today’s strong sales figures bode well for continued strong building activity going forward.”

National Association of Home Builders chief economist, Robert Dietz, said a recent analysis showed that the gap between construction and sales was at an all-time high in early Fall. As a result, the NAHB is forecasting an acceleration in single-family starts with some slowed pace of growth as new home sales work to catch-up.

Duncan though, says the current sales pace may be unsustainable.

“We continue to project a convergence in coming months via a softening of sales while housing starts show comparative strength. However, due to the revisions to past months’ numbers and third quarter sales coming in stronger than previously thought, our fourth quarter forecasts for both new sales and new housing starts will likely be revised upward,” Duncan said.

The median sales price of new homes was $330,600, while the average sale price was $386,200, according to census data.

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