Government data shows construction signings on new single-family homes increased 10.6% last month to a 739,000 annual rate, reflecting gains in all four major regions. The pace beat all estimates in a Bloomberg survey of economists.
The pickup in sales suggests the combination of lower mortgage rates and generous sales incentives by builders is starting to take root. Prospective buyers are finding more options in the new-home market as the supply of existing homes is still very constrained. Asking prices are also more competitive compared to the resale market.
Mortgage rates have dipped to 6.5% from a 2024 peak of nearly 7.3% in April, and they’re expected to fall further as the Federal Reserve gets ready to begin lowering interest rates next month. At the central bank’s annual symposium in Jackson Hole, Wyoming, on Friday, Chair Jerome Powell said “the time has come” to cut rates.
The pickup in sales allowed builders to reduce inventory last month, which fell to its lowest level since the start of the year. Nonetheless, the 462,000 homes for sale are still near the highest since 2008.
The current sales rate represents 7.5 months of supply, the lowest since September but above pre-pandemic levels. Elevated inventory is helping to keep prices down: the median sale price of a new home in July decreased 1.4% to $429,800 from a year ago. Prices have fallen annually in all but one month this year.
While inventory is slowly creeping up in the resale market as some homeowners part ways with their pandemic-era low mortgage rates, that supply is still historically low, keeping homes expensive. According to separate data out Thursday, the median price of previously owned homes set a record last month for any July going back two decades.
Despite weaker sales across the industry recently, the nation’s biggest home builders have seen strong profits. They lure buyers by cutting prices and buying down customers’ mortgage rates.
Shares of Toll Brothers Inc. rose earlier this week after the luxury builder reported that deliveries would be at the high end of its full-year forecast. The broader industry is performing well, too, with an exchange-traded fund of builders up 42% over the past year compared to a 27% climb in the S&P 500.