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The rate of sales of new homes in the US rose above expectations in August with a decline in mortgage rates fueling increased demand for property. According to a report released by the Commerce Department on Wednesday, single-family home sales rose 7.1% annually, well above market expectations of 3.5%.

Key Takeaways

• Single-family home sales rose to an annualized pace of 713,000 compared to expectations of just 600,000, marking 7.1% growth on a monthly basis.
• The median price of a home rose 2.2% annually to $328,400.
• High-priced homes, in particular, saw increased demand, with homes priced above $400,000 representing a larger share of sales in August compared to the month before.

Demand for high-priced homes above $400,000 rose in August, while demand for homes below that price range eased off. Single-family home sales rose to a pace of 713,000 in August, likely due to increased affordability from lower mortgage interest rates. With the average rate of a 30-year fixed mortgage dropping to 3.49% earlier this month, mortgage rates are now at the lowest since October 2016 after peaking at the multi-year highs seen last year.

Mortgage interest rates have plunged and new home sales have advanced sharply. Go figure. pic.twitter.com/tR4YfxGEXl

— Renaissance Macro (@RenMacLLC) September 25, 2019

With other indicators in the housing market also showing stronger activity, it could be that the struggling market is finally picking up after over a year of poor performance. Existing home sales, which account for 90% of sales, hit the highest rate of sales in over a year recently, while housing starts rose unexpectedly as well, achieving the fastest pace since mid-2007 before the recession and housing collapse. Taken as a whole, the recent housing market data indicates that residential construction may contribute to economic growth for the first time since 2017.

The supply of homes at the latest rate of sales sunk to 5.5 months in August, down from 5.9 the month before. The number of new homes for sale dropped to the lowest in almost a year at 326,000 as inventories begin to clear with increased affordability. The data also indicates a construction backlog, with an increase in the number of properties sold without construction beginning on site.

Expert Outlook

“U.S. housing market activity is responding positively to lower rates, another reason why the U.S. economy doesn’t need the extent of interest rate cuts that are priced into financial markets currently,” said Katherine Judge, an economist at CIBC Capital Markets.

“Mortgage applications for purchase pulled back in August from cycle highs (but have improved in September), as concerns about the trade war and economy appeared to overshadow cheaper borrowing costs,” said Sal Guatieri, senior economist at BMO Capital Markets.

Market Reaction

Gold prices are down today, trading within a tight range following the release of the unexpectedly strong housing market data. Spot gold last traded at $1,520.78/oz, down 0.74% with a high of $1,535.09/oz and a low of $1,520.22/oz. The price action may have been influenced by the release of notes from a recent phone call made by US President Donald Trump to Ukrainian President Volodymyr Zelensky which triggered an impeachment inquiry in the US.