New Home Sales And What They Mean To Rents, Economy

By John Carter, MNI

WASHINGTON, D.C. — New home sales reached 654,000 this July, according to seasonally-adjusted government measures, outpacing reports from previous months and the predictions of many observers by more than 70,000. Such impressive sales may provide benefits to the entire economy, not just the real estate sector.

Economists emphasize the importance of new home sales partly because of their effects on rents. Rental prices, which make up a large portion many families' spending, have been a particularly strong drag on the economy as the result of a tight housing market — but the new numbers indicate that the market may be loosening.

Potential homebuyers will also be encouraged by a 5.1 percent drop in the average price of a home between June and July.

Nevertheless, the increase in home sales may not be enough to match the strong demand. As long as the demand for new residences is greater than the supply, prices will remain high. In fact, the data show that the supply of new homes decreased by 2.9 percent, a development that could raise prices in the long term if it persists.

Resold homes are also showing evidence of upward pressure on prices, which rose 4.8 percent according to the most recent data. Since wages have stagnated, it's likely fewer and fewer buyers will be able to afford homes if prices continue to increase. Yet the National Association of Realtors found that first-time buyers made up the largest segment of the market than they had in four years, which is consistent with the new home sales figures. Despite a persistently tight housing supply, buyers are finding more of what they need.

Photo credit: Pixabay