After a summer lull, sales of new homes surged in October, according to a government report released Wednesday, suggesting that the housing market is coming back to life.
Sales of new, single-family homes jumped more than 25 percent in October compared with the previous month, the largest monthly increase in three decades, according to the Commerce Department report . Sales were up 21.6 percent from the same time last year.
The median home price also fell to the lowest level in almost a year. It was down 4.5 percent in October, to $245,800, and 0.6 percent lower than a year ago.
As mortgage rates started creeping up in the summer and home prices continued to grow at double-digit rates, some prospective home buyers found themselves priced out of the market. Rates increased 0.12 percentage points from July to September, with the 30-year fixed-rate average hovering near 4.5 percent in the run-up to Washington’s budget battles in October.
Once mortgage rates started to drop in October, home buyers snatched up the available inventory, said Stephanie Karol, an economist at IHS Global Insight.
The buying surge was also a result of a market rebound from a slow September, when sales fell 6.6 percent from the previous month. The number of units sold was 354,000, the lowest since the spring of 2012.
The time it would take to run through the supply of homes on the market fell as a result, the report said. The supply dropped to 4.9 months in October, the lowest since June. A supply of six months is considered healthy for the housing market.
Analysts expect mortgage rates to rise as the economic recovery lumbers along. The housing sector has long been one of the driving forces behind the recovery, but there are concerns that it may be losing momentum. Sales of existing homes were down 3.2 percent in October from the previous month, the lowest level since June, according to data from the National Association of Realtors. Home prices continue to rise as the market faces the twin problems of tight inventory and limited new construction, analysts say.
Interest rates are still low by historical standards. The 30-year fixed rate stood at 4.29 percent last week, according to data from mortgage company Freddie Mac. The Federal Reserve has not given a clear indication of when it will start rolling back its $85 billion-a-month bond-buying program, which keeps interest rates near zero. On Wednesday, the central bank released its anecdotal survey of the economy, which said that the country grew moderately during the federal government’s partial shutdown.
New-home sales are generally considered a volatile sector of the housing market, so monthly figures vary greatly, according to analysts. But October’s large increase was statistically significant, Karol said. Sales were sluggish in the summer, staying below 400,000 units. They reached 444,000 units in October.
New-home sales were higher in October in all regions of the country compared with the previous month. But the picture was different on a year-over-year basis. The South, which includes the Washington area, saw sales increase by more than 41 percent compared with last year. The number of homes sold in the region was 259,000. Sales were up by 29 percent in the Northeast and 21 percent in the Midwest over the same period. But sales declined more than 14 percent in the West compared to a year ago.