Lower rates fuel fastest pace of US home sales in over a year

New-home sales in the US jumped to a more than one-year high in September as customers responded to more incentives from builders and a drop in mortgage rates.

Sales of new single-family homes increased 4.1% last month to an annualized 738,000, government figures showed Thursday. The median estimate of economists surveyed by Bloomberg called for 720,000.

Builders are working to sell off inventories that are hovering near records after ramping up construction during the pandemic recovery. The supply of new houses rose 0.4% in September to the highest level since 2008.

The industry is already looking ahead to the crucial spring selling season. An index of builder sentiment published by the National Association of Home Builders reached the highest level in four months in October, fueled partly by the prospect of lower mortgage rates.

By region, sales in the South climbed last month to the fastest rate since April 2021. Purchases also picked up in the Northeast.

Meantime, the median sales price was little changed from a year ago, at $426,300. Still, prices remain almost 30% higher than at the end of 2019.

With housing affordability gauges near historic lows in the country, builders have been offering incentives such as discounts or mortgage-rate buydowns to help sell homes. This week, Atlanta-based builder PulteGroup Inc. said during its quarterly earnings call that the need for more sweeteners will continue for the rest of the year.

Mortgage rates in September dropped to the lowest in two years. Since then, borrowing costs have climbed on expectation that the Federal Reserve will take a more gradual approach to interest-rate cuts in coming months.

New-home sales are seen as a more timely measurement than purchases of previously owned homes, which are calculated when contracts close. However, the data are volatile. The government report showed 90% confidence that the change in new-home sales ranged from a 10.6% decline to a 18.8% gain.