Sales of new single-family homes in the U.S. soared much higher than expected in August and sales data for the previous two months were revised upwards as well.
The Census Bureau said on Wednesday that new home sales rose 7.1 percent to a seasonally adjusted annual rate of 713,000 units in August. July and June’s sales pace were also revised up.
The three-month moving average, which many economists consider a more reliable indicator of the health of the housing market because it smooths out month-to-month volatility, climbed to 703,000, the fastest pace in nearly 12 years.
Economists polled by Econoday had forecast an annual pace of 662,000 new home sales, a 3.5 percent climb.
Compared with a year ago, sales were up 18 percent.
New home sales appear to be benefitting from the strength of the labor market and lower interest rates. The Fed cut its interest rate target by a quarter of a percentage point at the end of its July meeting and mortgage rates are down by more than a percentage point from last year’s high.
Although new home sales account for only 11.5 percent of total housing market sales, they have bigger spill-over effects on the economy. Home building increases demand for labor and new homes need to outfitted with furniture and appliances.
New home sales are counted when contracts are signed. In August, about 63 percent of the homes sold were either under construction or yet to be built. That means the economic benefits of Augusts sales will continue to be felt in the months to come.
Low levels of residential investment had been a drag on the economy, pulling down GDP for six consecutive quarters. That is likely to change now, with residential investment providing a boost to growth this quarter.
Sales were particularly strong in the largest markets for new homes, the South and the West. Sales in the South jumped 6.0 percent. Sales in the West climbed 16.5 percent. Sales were down in the Northeast and the Midwest.