New home sales increased by 14% in September to 800,000, the highest since March, indicating that strong demand for new houses continued to drive the market, according to Commerce Department data released on Tuesday.
This was the biggest one-month percentage increase since July 2020, as the change in new home sales in August of this year was revised downwardly from a 1.5% increase to a 1.4% decrease.
As demand soared, the median price for new homes rose by 18.7% from a year ago, a record high. This increase helps to explain the sharp rise in shelter costs in September in the latest Consumer Price Index report.
Inside the new home sales report, all regions except for the Midwest recorded increases, led by the South with a net monthly gain of 74,000.
New home inventory was unchanged in September, staying at 379,000, equivalent to 5.7 months of supply at the current sales pace, compared to 3.5 months of supply a year ago.
The supply of new homes has certainly improved in recent months, especially when compared to the end of 2020. Still, supply chain issues, as well as shortages of labor and materials, have continued to hamper builders’ ability to meet demand.
The big picture remains the same for the new homes market: Strong demand is driving sales, while supply constraints are causing prices to rise.
While sales of new homes are quite volatile, we expect that they will continue to rise in the coming months following recent signs of consumers being willing to spend, as reported by the Conference Board and the University of Michigan.