New Home Sales Hit 14-Year High; 30-Year Mortgage Rates Pegged at 2.9%

The pace of new home sales topped the 1 million mark for the first time in 14 years last month, the Commerce Department said Thursday, as the U.S. housing market continues to defy the broader economic slowdown.

New home sales in the United States jumped to a fourteen-year high, official data indicated Thursday, cementing the housing market's recent gains as mortgage rates hold near all-time lows.

The sale of newly-built single-family homes rose 4.8% from the previous month in August, the Commerce Department said, and were up 43.2% from the same period last year to an annual unit rate of 1.011 million. The median sale price of a new home sold in August was $312,800, the Department said, which is down 4.3% from last year, while the average sale price was $369,000. 

The average rate for a 30-year fixed mortgage, meanwhile, bumped 3 basis points higher to 2.90% for the week ending on September 24, just ahead of the all-time low of 2.86% recorded earlier this month.

"Stepping back from the monthly noise, though, new home sales are one of very few indicators to be enjoying a real V-shaped recovery," said Ian Shepherdson of Pantheon Macroeconomics. "But we’re not sure how much further it can run, given that mortgage applications appear to be leveling-off, and lending standards are tightening."

"Still, no reversal of recent sales increases is likely, and the increase in transactions in recent months will lift housing construction for some time yet," he added. "With supply at a record low of just 3.3 months, price appreciation has further to run too; ignore the reported 4.3% y/y drop in median prices in August; the data are wildly erratic. If inventory remains close to its current level, sustained price increases of up to 10% y/y are a decent bet."

Earlier this week, existing home sales surged the most in nearly 15 years last month, according to the National Association of Realtors, while median prices hit an all-time high and sale times narrowed as housing continues to pace the nation's economic recovery. 

Housing has remained one of the few consistent bright spots for an American economy hit by a wave of unemployment, and slower consumer spending, brought on by the coronavirus pandemic.

However, decisive action from the Federal Reserve, in the form of record-low interest rates and the purchase of billions worth of mortgage-backed securities, has helped keep the housing market ticking amid what many suggest could be a generation-defining change in the way people live and work in the world's biggest economy.

U.S. 30-year mortgage rates hit a record low of 2.86% earlier this month, according to Freddie Mac data, igniting "robust purchase demand activity, which is up twenty-five percent from a year ago and has been growing at double digit rates for four consecutive months", according to chief economist Sam Khater.