Americans bought new homes in October at the fastest pace in a decade — a 6.2 percent monthly increase that reflects both the underlying strength of the economy and the worsening shortage of existing homes for sale.
The Commerce Department said Monday that new-home sales last month rose to a seasonally adjusted annual rate of 685,000. That marks the third straight monthly gain and the best sales clip since October 2007. Much of the sales growth came from the Northeast and Midwest, with the South and West posting smaller increases.
Many buyers are turning to new construction because there is a shrinking supply of existing homes for sale. But new construction has been unable to keep up with demand. Potential buyers are searching for homes amid a healthy job market with a 4.1 percent unemployment rate and attractive 30-year mortgage rates that are averaging less than 4 percent.
Still, the lack of properties on the market has fueled higher prices, creating affordability pressures.
The average sales price of a new home jumped 13.6 percent over the past 12 months to $400,200.
Stephen Stanley, chief economist at Amherst Pierpont Securities, suggested that some of new homes were sold last month before construction had started — a sign of the inventory squeeze.
"It would appear that builders paired up with prospective buyers en masse in October to lock in deals that would allow the buyers to have their homes built to order," Stanley said.
These price increases are a sign that builders are able to charge more money because of the dearth of inventory.
The number of sales listings for existing homes has tumbled 10.4 percent from a year earlier to just 1.8 million, according to the National Association of Realtors. That's the fewest number of homes on the market for any October since the Realtors began tracking the data in 1999.
New construction can only offset some of this supply crunch.
There is only 4.9 months' supply of newly-built homes on the market, the lowest reading since July 2016.