By Safiyah Riddle
(Reuters) -Sales of new U.S. single-family homes rose in July, as an acute shortage of existing homes drove buyers to new units.
New home sales shot up 4.4% to a seasonally adjusted annual rate of 714,000 units last month, the Commerce Department said on Wednesday. The sales pace in June was revised to 684,000 units from the previously reported 697,000 units.
Economists polled by Reuters had forecast new home sales, which account for a small share of U.S. home sales, would rise to a rate of 705,000 units.
New home sales are counted at the signing of a contract, making them a leading indicator of the housing market. They, however, can be volatile on a month-to-month basis. Sales increased 31.5% on a year-on-year basis in July, the largest annual rise since April 2021.
The median new house price in July was $436,700, a drop of 8.7% from a year ago. The annual price decline in July was the largest since April, which was the biggest drop in three years.
The inventory of existing homes is near historically low levels as mortgage rates hit the highest levels since 2000, dissuading existing home owners who are locked into low rates from putting their homes on the market.
The shortage of existing home inventory is pushing potential buyers towards new houses and driving a flurry of new construction.
At the same time that the median price for new homes fell, the median home price for existing homes increased on an annual basis in July, according to a report released on Tuesday, as the shortage of properties offset the impact of high mortgage rates that had dampened demand in prior months.
Despite the relative strength of new home sales, the combined rate of both new and existing home sales is the lowest since January. Existing home sales constitute the majority of the market.
Tepid home sales volume, in tandem with record-breaking mortgage rates, the renewed house price appreciation and an acute supply shortage, could complicate the stability of the overall housing market.
Home prices were initially the most sensitive to the Federal Reserve's interest rate hikes - the U.S. central bank has raised rates by 5.25 percentage points since March 2022 - but have stabilized after falling into recession and are still adding significant upward pressure to overall inflation.
New home sales in the Midwest increased 47.4%, the biggest rise on a monthly basis since September 2010. They also rose 21.5% in the West, a region that has experienced the most significant price declines in the past year. They fell by 2.9% in the Northeast and by 6.3% in the densely populated South.
There were 437,000 new homes on the market at the end of last month, up from 428,000 in June. At July's sales pace it would take 7.3 months to clear the supply of houses on the market, down from 7.5 months in June.