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New-home sales in August surge to six-year high

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A Toll Brothers development.

Sales of new single-family homes surged last month, hitting the fastest pace in more than six years, according to government data released Wednesday.

New-home sales rose 18% in August to a seasonally adjusted annual rate of 504,000, the fastest pace since May 2008, the U.S. Commerce Departmentreported. August’s result thrashed forecasts from economists polled by MarketWatch, who had expected a sales rate of 426,000, compared with an originally estimated pace of 412,000 for July.

The 18% gain was the largest one-month percentage rise since January 1992.

The report may ease concerns about fits and starts in the housing market’s recovery. However, economists warn against reading too much into a single month’s report, noting that the volatile new-home sales series undergoes revisions. On Wednesday, the government upwardly revised July’s sales pace to 427,000.

“We expect some of this buoyancy to be reversed in the coming month. However, we continue to believe that the underlying fundamentalists of the housing sector remain favorable, underpinned by the sustained recovery in the labor market and favorable buying conditions,” Millan Mulraine, deputy head of U.S. research and strategy at TD Securities, wrote in a research note.

An exchange-traded fund of home builders XHB, +0.60% actually dropped after the report was released.

Other housing-market indicators have shown some recent shakiness. The government recently reported that construction started on new U.S. homes tumbled in August. But even though the construction pace on single-family homes is far below its long-term average, that relatively slow pace may still betoo high given that vacancy rates haven’t dropped much from post-housing-collapse highs.

That’s a worrisome trend, given that it’s been five years since the recession ended. While the labor market has been strengthening, high credit standardsare still a major hurdle, preventing many families from obtaining the financing needed to buy a home. Recent government data show that the pace ofhousehold-formation is weak.

Still, builders are increasingly confident in the single-family-home market, with a recent gauge of their sentiment hitting a nine-year high. The home builders who survived the housing bust may feel particularly confident about their ability to navigate the evolving economy.

August’s pace of new-home sales rose 50% in the West, 29% in the Northeast and 8% in the South. Meanwhile, the pace was unchanged in the Midwest.

The median price of new homes in August rose to $275,600, up 8% from a year earlier. August’s supply of new homes on the market fell to 4.8 months at the current sales pace from 5.6 months in July.

New-home sales in August were up 33% from a year earlier.

http://www.marketwatch.com/