New home sales surge to six-year high, renewing hope for the market

New home sales jumped an unexpected 18 percent in August, the Commerce Department said Wednesday. Coming off the heels of a disappointing report for existing home sales, the robust new home sales report eased fears that the housing market is headed in the wrong direction. 

Two days after existing home sales put a damper on hope for the housing market, a dazzling new home sales report has it roaring back.

Sales of new single-family homes surged 18 percent to a 504,000 annualized pace in August, up from a 427,000 pace in July and a 419,000 pace in June, according to data released Wednesday by the Commerce Department. The report surpassed predictions – economist had been expecting about 430,000 annualized.

“Altogether, this is a much stronger report than expected and suggests housing demand has stabilized in recent quarters,” Michael Gapen, US economist with Barclays Research, writes in an e-mailed statement.

The stock of new homes for sale reached a four-year high, inching up to 203,000 last month, following 201,000 in July and 169,000 in June. But sales were so strong that the months’ supply of homes available fell to 4.8 after holding steady at 5.6 in June and July.

“Historically, roughly 6 months has been considered ‘normal,' ” Joshua Shapiro, an economist with MFR Inc., writes via e-mailed analysis.

The robust new home sales report comes on the heels of disappointing figures for existing home sales, which make up a significantly larger proportion of the housing market than new homes. Existing homes fell 1.8 percent in August, calling into question whether  housing growth could withstand the pullout of speculative investors and all-cash buyers. Such investors had played a major role in boosting sales.

Still, there was reason for optimism nestled into that lagging report. Families have been wading slowly back into the market over the past year or so: Sales to families increased 2.9 percent in August and 0.5 percent year-over-year, the first such increase since October of last year. In another positive sign, the share of first-time homebuyers is remaining steady, at 29 percent of the market.  Also, the market share of distressed home sales continued to fall, and many analysts argue that the pullout of investors will be good for the long-term health of housing.

New home sales, meanwhile, account for just 9.1 percent of the overall housing market, and tend to be a more volatile measure than existing homes. Still, the strong report combined with other hopeful indicators should help calm fears that housing, which has been on a slow upward trend for much of the year, is reversing course into a decline.

“Given the close relationship between sales and starts of new single family homes the leap in August sales would bode very well for starts if it is sustained,” Mr. Shapiro writes. “It is also in sync with recent very buoyant homebuilder sentiment as measured by the homebuilder survey’s housing market index.”

“However, “ he warns, “with mortgage applications for home purchase at cyclical lows and existing home sales not showing any great signs of life, we definitely would like to see more data on the new home market before concluding that we are ratcheting up to a new level of activity.”

In a separate release, the Mortgage Bankers Association (MBA) reported that mortgage applications fell last week, after a substantial increase the week before.