New homes are selling at the fastest rate in over two years. The Commerce Department today reported a 5.7% increase in new home sales month to month. Seasonally adjusted sales came in at 389,000 annual pace. Those numbers are the best since April of 2010, when a first time homeowners tax credit spurred sales. The sales numbers follow an earlier report showing a 15% jump in housing starts.
Demand for new houses is up 27% from a year ago. The average price of a new home is up 11.7% to $242,400. These numbers all line up with the notion that the economy is picking up in strength. Economists are now beginning to show optimism that next year could see bigger economic growth than was originally predicted.
At the current pace of sales, there are enough homes on the market to last 4.5 months. That is the lowest figure since 2005, long before the real estate bubble popped and the financial crisis set in. The strong housing demand leads to the creation of construction jobs. Home construction led to 0.3% growth in the economy in the first half of the year according to Bloomberg. It is the first time the sector has added to growth since 2005.
The US economy is still not out of the woods yet, however. Domestically, the situation looks good, but internationally we are still on shaky ground. Europe is still weak, and China is still loosing a bit of steam. Exports have been strong these past few years, but weakness overseas could slow their growth. We now live in a world economy, where events in other countries have a big effect on our economy. For now, at least, we appear to have our own ducks in a row.