U.S. New-Home Sales Surge 18% in August

Highest Level Since 2008;
Signals Higher Consumer Demand That Could Boost Housing Market

By JOSHUA MITCHELL And
KRIS HUDSON
CONNECT
Updated Sept. 24, 2014 12:47 p.m. ET


A new home is seen for sale in Vienna, Va., last March. Sales of new U.S. single-family homes surged and hit their highest level in more than six years in August. Larry Downing/Reuters

WASHINGTON—Sales of newly built homes soared last month to the highest level since 2008, a sign of stronger consumer demand that—if sustained—could lead to a ramp-up in construction.

New-home sales climbed 18% in August from a month earlier to a seasonally adjusted annual rate of 504,000, the Commerce Department said Wednesday. That marked the biggest one-month jump since 1992 and the highest level of sales since May 2008, when the U.S. was in recession.

New-home sales represent a small slice of the housing market—roughly a 10th of all sales—and the data are volatile and often revised. But the report follows an industry survey that showed home-builder optimism reached the highest level this month since 2005. Together the reports suggest home construction could be on the verge of a long-awaited pickup, which would create jobs and stoke the broader economy.

"The leap in August sales would bode very well for starts if it is sustained," Joshua Shapiro, chief U.S. economist of MFR Inc., said in a note to clients. "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."

Broader trends suggest new-home purchases have picked up but are still running below historical averages. Compared with a year ago, new-home sales were up 33% in August.

But new-home sales typically reached 1 million a year before the last recession.

To be sure, the August results may have been elevated due to several special factors. Last month included more weekend days—prime buying periods—than July and August 2013. In addition, home sales fell off in the second half of last year as interest rates began to rise, meaning the year-ago figures to which the latest results are compared are relatively low.







Many housing analysts expect new-home sales for this year to end up showing a single-digit percentage gain from 2013.

To wit, Commerce data shows that sales so far this year are running at a pace 2% greater than the same period last year.

Brian Johnston, chief operating officer of Mattamy Homes Ltd., a closely held Canadian builder that operates in five U.S. states, described the new-home market as "choppy" in recent weeks. Mattamy's August sales in the U.S. "picked up smartly" from its year-ago figures, but that momentum fizzled in the past two weeks, he said.

Mr. Johnston predicted "more of the same" for the balance of this year. "The numbers tell me that we should see a slow trajectory of improved or increasing sales," he said.

Mattamy, based in Toronto, anticipates selling 1,500 homes in the U.S. this year.

The Commerce report comes days after the National Association of Realtors said sales of previously owned homes—roughly 90% of the market—slipped in August, ending four months of gains. The Realtors report is considered a more reliable barometer of the overall housing market because it reflects the majority of sales.

The housing market faces a key test in coming months as the Federal Reserve concludes its bond-buying program in October. The program is credited with helping to keep mortgage rates at historic lows. A rise in rates could dent affordability and further discourage Americans who might buy a home.

Wednesday's report showed the number of homes on the market fell sharply, a development that could bode well for the economy. If demand continues to pick up, builders would need to ramp up construction, which creates jobs, helps suppliers and pumps up the overall economy.

At August's sales pace, it would take 4.8 months to deplete the supply of new homes. That was down from 5.6 months of supply in July and marked the lowest level since June 2013.

Regionally, sales rose in every region except the Midwest, where sales were flat.

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