Sales of newly built homes soared across the nation in July, as pent-up demand from the shutdown spring market, urban flight and a new desire for more work-at-home space fueled the growth.
As measured by signed contracts, new home sales jumped 13.9% compared with June and were a remarkable 36.3% higher annually, according to the U.S. Census. June's reading was also revised higher. This is the strongest one-month pace since 2006.
This is the third consecutive month of sizable sales gains, after sales dropped dramatically in March and April, due to the onset of the coronavirus pandemic.
Strong demand sucked up the inventory of newly built homes for sale, which fell to a four-month supply from a 4.7-month supply in June.
"The new home market has everything going for it right now including limited resale supply, fear of missing out, heightened dissatisfaction of our current living situation, low mortgage rates, months of saving money, and increased demand from key demographic cohorts," said Ali Wolf, chief economist at Meyers Research.
Low supply and strong demand made it easier for builders to raise prices. The median price of a newly built home sold in July was $330,600, an increase of 7.2% compared with July 2019.
"With larger homes, greener backyards, garages and home offices ranking at the top of home buyers' lists, new homes in the suburbs fit the bill and have been a welcome answer to a housing market parched for existing inventory," said George Ratiu, senior economist at realtor.com. "Builders have recognized the acute need for more construction and have moved to fill the gap. The main concern hovering over the market is whether the rising costs of building materials will drive prices even higher."
Lumber prices are up more than 100% since mid-April, as mills shut down in the spring and did not expect to see such strong demand so quickly. There are also higher tariffs on imports of lumber.
Buyers are taking advantage of low mortgage rates, which give them additional purchasing power but also tend to juice home prices. The average rate on the 30-year fixed set two record lows in July, when these sales contracts were signed.
Regionally, sales gains were strongest in the Midwest and the South but dropped in the Northeast on a monthly basis. The Northeast tends to be the most volatile read, as it has the smallest concentration of new construction. Sales saw a modest monthly increase in the West but were up a strong 41% annually.