The October new home sales report from Census and HUD showed a 25% increase over a low September level. Both months were reported late and together because of the government closer in early October. The 444,000 level reported for October brings sales back to the levels that were established earlier this year. All four regions showed significant increases returning to levels at or above the second quarter averages.
The pause and decline in the third quarter appears to be a reaction to rising interest rates and the rising uncertainty around government debt and deficit resolution that led to the shut down in early October. As rates fell back and the shut down ended, consumers returned to the market. Even with the large variances, the 25.4% change is enough to be considered an increase at the 90% confidence level.
The inventory of new homes for sale dropped back to 183,000 as builders’ inventories suffered from relatively slow building trends in the last several months. Because of the uptick in the sales rate, the months’ supply dipped to 4.9 months, the lowest since the second quarter. The inventory of completed homes is particularly low at 42,000, up slightly from the third quarter and back to levels last seen in the first and second quarter. The completed inventory is important to many potential home buyers who waited to be certain that their existing home sold and hence need a home ready for occupancy.
Home prices dipped 0.6% from a year ago (the data is not seasonally adjusted) and that appears to be a result of a rise in sales in the$150,000 to $199,999 range and a fall in sales $300,000 to $399,000 range. Sales were up the most in the Midwest and South, also contributing to the explanation that the virtually no change in prices is driven by composition of sales rather than base home prices.
NAHB expects this sales level to sustain itself through the end of the year as pent up demand continues to feed the market, as interest rates remain low by historic standards and as the supply of existing homes for sale remains low.