The housing market offers one of the few bright spots in the U.S. economy with homebuilders seeing record-setting sales numbers. The U.S. Census Bureau and U.S. Department of Housing and Urban Development released July’s new home sales data this week that bolsters this trend.
Year-over-year sales increases
Looking at the report’s seasonally adjusted numbers, sales of new single-family houses in July 2020 topped 901,000. This is 13.9 percent above the revised June 2020 rate of 791,000, and it is an impressive 36.3 percent above the July 2019 rate of 661,000 units sold.
Broken out by region, July numbers show an especially strong market in the Midwest, where the number of new houses sold jumped 58.8 percent from June to July of this year and skyrocketed a whopping 81.4 percent year-over-year for July. The Northeast, by contrast, had a mixed bag for new home sales. There, sales from June to July dropped 23.1 percent, but year-over-year for July, their numbers are up 25 percent.
Sales prices are also up, in part because supply (i.e., the ratio of houses for sale to houses sold) is down around 33 percent from this time last year with just a four-month supply available as compared to a six-month supply in July 2019. The median sales price of new houses sold in July of this year was $330,600, versus $308,300 in July of 2019. The average sales price last month was $391,300; in July of last year, it was $373,500.
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The appeal of the new home
There are several factors influencing these statistics, according to a recent article in The Wall Street Journal. First, we have extremely low interest rates for mortgages, making new homes more affordable for many families. According to data from Freddie Mac, the average rate on a 30-year fixed mortgage has fallen to just 2.96 percent.
But also at play are demographics. New homes typically cost more than a previously owned home, thus the people buying these new houses are likely existing homeowners who are more financially secure. The WSJ article notes that these homebuyers “are probably less likely to have become unemployed as a result of the coronavirus pandemic,” putting them in an ideal position to take advantage of low mortgage rates to buy a new home.
A third factor called out by the article is urban flight. The pandemic has caused many big city workers to realize they can work remotely, thus increasing the allure of the single-family home in the suburbs, where new home construction is booming. These buyers can get more house, a yard, and more space between them and neighbors — as well as a home office — all attractive selling points to many people right now.
Builder confidence rose 14 points in July 2020 to 72, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), reflecting the industry’s optimism regarding economic recovery. Any reading above 50 is considered a signal of positive builder confidence. The April 2020 decline to 30 was the largest single monthly change in the history of the index and marks the lowest builder confidence reading since June 2012.
As we head into the fall and the start of this uncertain school year, it will be interesting to see if these home buying trends continue their upward track.
You can learn more about how these and other industries have been impacted by COVID-19 by visiting our free COVID-19 webpage.