More Americans bought new homes in September, a sign that demand remains solid despite a shortage of properties on the market.
Recent hiring gains coupled with low interest rates have bolstered the market for new homes. But builders have largely struggled to keep pace with new construction, creating a shortage of listings for would-be buyers.
New-home sales advanced 3.1 percent last month to a seasonally adjusted annual rate of 593,000, the Commerce Department said Wednesday. The gains were concentrated in the Northeast, Midwest and South, as sales tumbled last month in the West.
So far this year, sales have increased 13 percent compared to the same period in 2015. The improvement largely reflects the better economic outlook as paychecks are improving and a growing share of homebuyers are seeking new properties.
“Demand for new homes remains strong in response to employment growth, wage gains, positive demographics and mortgage rates near all-time lows,” said David Berson, chief economist at Nationwide.
Sales have steadily grown from the depths of the housing bust and Great Recession over the past three years. Still, new-home sales lag behind their historic pace of roughly 650,000 a year. If the sales pace for 2016 holds, sales will total roughly 566,000 at the end of this year.
The greater demand has caused narrower inventories of newly built homes. The market contains only 4.8 months’ supply of new homes, down from 5.8 months a year ago.
The declining supply of new homes has modestly boosted prices, which have risen 2.7 percent to an average of $377,700.
Additional construction is unlikely to end the supply crunch. In September, housing starts fell 9 percent to a seasonally adjusted annual rate of 1.15 million.
Yet builders remain confident about their prospects. The National Association of Home Builders/Wells Fargo builder sentiment index released last week was 63 in October, down slightly from the prior month. Readings above 50 indicate more builders view sales conditions as good rather than poor.
Low mortgage rates are feeding much of this confidence. Mortgage buyer Freddie Mac said the average 30-year fixed-rate mortgage was 3.52 percent last week, down from a 52-week high of 4.01 percent.