New home sales rise to 7-year high

Some economists believe there could be an uptick in home buying as prospective home owners try to lock in a low mortgage rate before the Federal Reserve raises interest rates.

The sales in August came in at the fastest pace since February 2008, suggesting the trend is positive after a sluggish stretch, said the consultancy IHS (NYSE: IHS – news) in a note. New home sales have soared 25.8 percent in the past year.

Meanwhile, sales for July were revised upward to show an annualised pace of 522,000 from 507,000.

Homebuilders increased their prices of new homes aggressively in 2014, which likely weighed on sales. However, most economists seemed to be encouraged with the results. “However, the single largest constraint has been the lack of demand and the slow resale market which is the source of most new home buyers”.

That was changed little from sales during 2013, but builders reined in increases in prices this year, fueling increased buyer traffic as well as purchases.

There were just 218,000 new homes for sale at the end of July, enough to last 5.2 months at the current pace of sales. Almost 3 million more Americans have found jobs in the past year and mortgage rates remain low by historical standards. After the Fed’s meeting last week, Yellen had said “We are envisioning further improvement in the housing market, it remains very depressed”.

Right now, however, potential buyers are facing fewer choices than would normally be the case. Meanwhile, sales declined 9.1 percent in the Midwest. The latter are calculated when a contract closes, typically a month or two later, and account for about 90 percent of the market.