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A U.S. flag decorates a for-sale sign at a home in the Capitol Hill neighborhood of Washington, in this August 21, 2012 file photo. (JONATHAN ERNST/Reuters)
A U.S. flag decorates a for-sale sign at a home in the Capitol Hill neighborhood of Washington, in this August 21, 2012 file photo. (JONATHAN ERNST/Reuters)

U.S. new home sales near 2-1/2 year high Add to ...

New U.S. single-family home sales surged in September to their highest level in nearly 2-1/2 years, further evidence the housing market recovery is gaining steam.

The Commerce Department said on Wednesday sales increased 5.7 per cent to a seasonally adjusted 389,000-unit annual rate – the highest level since April 2010, when sales were boosted by a tax credit for first-time homebuyers.

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Though August’s sales pace was revised down to a 368,000-unit pace from the previously reported 373,000 units, the tenor of the report was relatively strong, with the median home price of a new home rising 11.7 per cent from a year ago.

Economists polled by Reuters had forecast sales rising to a 385,000-unit rate last month.

While the increase in sales last month added to signs of a broadening housing market recovery, new home sales are just over a quarter of their peak in July 2005. Compared to September last year, new home sales were up 27.1 per cent.

The housing market is on the mend after collapsing in 2006 and dragging the economy through its worst recession since the Great Depression. Home sales are increasing, pushing down the stock of unsold properties, giving a modest lift to house prices and builders’ confidence to take on new projects.

However, the housing market recovery lacks the muscle to take the baton from manufacturing as the main driver of the economic recovery.

The recovery in the sector is being supported by record-low mortgage rates, which have been held down by the Federal Reserve’s ultra-accommodative monetary policy stance.

The U.S. central bank has targeted housing as a channel to boost growth, announcing last month that it would buy $40-billion in mortgage-backed securities per month until the outlook for employment improved significantly.

Though the inventory of new homes on the market rose 1.4 per cent in September, it remained near record lows.

At September’s sales pace it would take 4.5 months to clear the houses on the market, the lowest since October 2005, down from 4.7 months in August.

Sales last month were up in three of the four regions. They tumbled 37.3 per cent in the Midwest.

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