Population Growth Driving New Home Sales Boom

According to a recent report by Bloomberg, September hit a record high in terms of new home sale growth. Experts say that this is a sign that the real estate market, which was at a steep decline during the height of the recession, is now booming back with the best numbers since 2010.

Sales for new homes were 5.7 percent higher than the month of August, with numbers totaling around 389,000. This number is 27% higher than during the month of September last year and accounts for the highest amount of total houses sold since April of 2010.

What’s the cause?

As the U.S. continues to carry itself toward economic recovery, many may wonder why new housing sale numbers are continuing to boom. Experts make note that there are two specific reasons: mortgage rates and a growth in population.

Thanks to the Federal Reserve buying tons of housing debt, mortgages rates are continuing to sink lower as time goes on. As long as the economy continues on its path of improvement, housing sales should continue to increase gradually throughout the rest of this year and into 2013.

Fed’s “missing piston”

Policy makers from the Federal Reserve are continuing to work hard in order to keep up with growth within the real estate sector. Chairman Ben Bernanke notes that he considers housing as a “missing piston” in the engine that helps power continual growth. The Fed recently announced reports after making a third round of asset purchases that are meant to continue growth and keep interest rates at a low level.

The Federal Open Market Committee’s recently released report notes that demand for a new house is up 27.1 percent compared to September 2011. Also, the average purchasing price for a new home climbed 11.7 percent compared to just one year ago. The average purchasing price currently sits at $242,400.

Out of the four regions within the U.S., three of them saw overall increases in total housing purchases. The Midwest was the only region to be hurt by new reports, with a drop of 37.3 percent in September. However, total home purchases jumped by 16.7 percent in the Northeast and 16.8 percent in the South.

Impressive numbers like these for most of the U.S. is causing experts to note that the market for new homes is roaring back better than ever. Construction numbers of new housing projects also rose in September, with a rate of 872,000. This is the fast growth in new housing projects since 2008.

Inventory fell

Reports also say that September’s supply of available new houses dropped from 4.7 months in August to 4.5 months. This lead to around 145,000 new houses going up for sale within September. With a spur in new housing activity, heating insurance companies may also be seeing a spike in new customers. After all, with the cold winter months ahead for most parts of the United States, new home owners will be actively heating their homes very soon. Without a proper insurance policy, something like a blown water heater could cause these homeowners additional money that they may not have available to spend, after recently purchasing a new house.

Bloomberg also makes note that within 2011, 6.7 percent of residential homes consisted of newly built houses. Despite this being down from a record high of 15 percent during the real estate boom of the last 10 years, it’s interesting to note that the cost of borrowing has gone down significantly, which is helping to improve the recovery process drastically. According to an analysis between 1971 and 2012, Freddie Mac says that the median 30-year fixed rate mortgage has been hovering around 3.37 percent throughout the month of October.

Long term outlook

According to the Census Bureau, the total number of new U.S. households has seen its biggest jump in the past 10 years. In 2011, the total number increased by 2 percent, or 119.9 million new households.

Despite these fantastic new numbers hinting at the fact that both the housing market and economy are slowly recovering, many economists state that we still have a long way to go. Economist Jed Kolko notes that the current housing market is only around 43% of what it used to be, which is what Kolko considers being “normal.” However, with things like fewer homes being foreclosed, along with increasing demand for new homes, the market should continue to see growth well into 2013 and beyond.