New Home Sales Beat Economist's Expectations

Sales of new U.S. single-family homes unexpectedly rose in October to hit a 10-year high amid robust demand across the country, offering a boost to the housing market.

The upbeat report from the Commerce Department on Monday was the latest indication that housing was regaining momentum after treading water for much of the year because of a dearth of homes for sale and shortages of labor and suitable land for building. It underscored the economy’s strength early in the fourth quarter.

“New home sales are a leading indicator and the jump in October sales are leading the economy higher as we finish out the year,” said Chris Rupkey, chief economist at MUFG in New York. “You have to be very confident to make the biggest big-ticket purchase of your life.”

The Commerce Department said new home sales increased 6.2 percent to a seasonally adjusted annual rate of 685,000 units in October, the highest level since October 2007. September’s sales pace was revised down to 645,000 units from the previously reported 667,000 units.

Economists had forecast new home sales, which account for 11 percent of overall home sales, falling 6.0 percent to a pace of 625,000 units last month. Sales surged 18.7 percent on a year-on-year basis in October.

New home sales, which have now increased for three straight months, added to strong homebuilding and existing home sales data in painting a positive picture of the housing market after it appeared to stall this year.

More than two-thirds of the new homes sold last month were either under construction or yet to be started. The inventory of new homes on the market increased 1.4 percent to 282,000 units, the highest level since May 2009.

Houses under construction or yet to be started accounted for about 77 percent of the inventory last month.

At October’s brisk sales pace it would take 4.9 months to clear the supply of houses on the market, the fewest since July 2016 and down from 5.2 months in September. A six-month supply is viewed as a healthy balance between supply and demand.

“The market is starving for affordable new homes, and builders cannot and will not ignore this hungry market,” said Svenja Gudell, chief economist at Zillow.

“Land, labor and lumber prices are only expected to keep rising, which will force those builders looking to meet market demand to search for less expensive development options farther away from urban job cores.”