New-home sales in the US unexpectedly surged in August to the fastest pace since early 2022, likely lifted by builders’ rampant price cuts and sales incentives.
Sales of new single-family homes increased 20.5% to a 800,000 annualized rate in a broad advance, according to a government report issued Wednesday. The pace exceeded all estimates in a Bloomberg survey of economists.
The surge in demand helped put a significant dent in what’s been a vast oversupply of new homes on the market. Last month, the inventory of new homes for sale decreased to 490,000 units, the lowest this year.
The data suggest US homebuilders are successfully luring buyers off the sidelines with aggressive sales incentives. This month, 39% of builders reported cutting prices in a survey by the National Association of Home Builders and Wells Fargo, a post-pandemic high.
Homebuilder Lennar Corp. Recently reported offering sales incentives equal to 14.3% of its average sale price, more than double its usual 5% or 6%, Bloomberg Intelligence analyst Drew Reading said in a note.
The report helped drive up shares of homebuilders in early trading Wednesday.
New home sales reflect contract signings, which likely take place roughly a month before the transaction is complete. The figures capture the start of a recent slide in mortgage rates, that now stand at the lowest level in a year.
“Lower borrowing costs supported a surge in new home sales in August, and could drive further increases in the coming months, given the continued decline in mortgage rates since then,” Thomas Ryan, North America economist at Capital Economics, said in a note.
However, other economists were skeptical of the advance, which Oliver Allen of Pantheon Macroeconomics described as “implausible.” Allen and Stephen Stanley, chief economist at Santander US Capital Markets, both expect the sales pace to drop in the coming months.
Despite the improved August numbers, US homebuilders are contending with lingering affordability concerns. Many buyers still can’t afford today’s prices and financing costs, and are increasingly nervous about the nation’s labor market.
The median sales price increased for just the second time this year on annual basis, despite builders’ wide use of sales incentives. It rose to $413,500, bolstered by demand for homes over $1 million, while a smaller share of transactions are taking place at the lower end of the price spectrum.
Around the US, sales in the South, the country’s biggest home-selling region, advanced to the highest since March 2021. Sales also climbed in the other three US regions.
New-home sales are seen as a more timely measurement than purchases of existing homes, which are calculated when contracts close. However, the data are volatile on a monthly basis. The government report showed 90% confidence that the change in new-home sales ranged from a 1.3% decline to a 42.3% gain.
The National Association of Realtors is expected to give a report on the US’s previously owned home market on Thursday.