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Strong demand for new homes signals U.S. economic strength, economists say

Sales of newly built single-family homes came in at an annual rate of 999,000 in October, the government said Wednesday, just a tick below the September rate, but a whopping 41.5% increase from the same month last year, highlighting housing's role as a bulwark for the U.S. economy. "Today's report from the Census Bureau suggested that demand for new homes in October continued to be strong," Doug Duncan, chief economist at Fannie Mae, said in an email. "The monthly sales pace is now reported to have been essentially flat for the three months at an elevated level of about 1 million annualized units, a rate not seen since 2006." Michelle Mayer, U.S. economist at Bank of America said in a research note that housing broadly has benefitted from very low interest rates, consumers reallocating spending from things like vacations to home buying, demographic changes and low household debt levels. The demand for new homes signals a broadly healthy consumer, though rising claims for unemployment benefits may suggest that the economic rebound seen in the third quarter could be fading, she added. High demand for new homes has also been a boon for home building firms. Pulte Group, Inc. , Lennar Corp. , D.R. Horton Inc. and Toll Brothers, Inc. have all returned more year-to-date than the S&P 500 , according to FactSet. To be sure, there's reason to believe that demand will begin to cool off in the months to come. Rubella Farooqi, chief economist with High Frequency wrote in a Wednesday note to clients that "supply constraints and rising prices could weigh on demand" and that "tightening lending standards could be a factor going forward." With home sales at decade highs, real disposable personal income still higher than before the pandemic and household debt levels at their lowest in years, there is a solid argument that strength in housing will continue . Just how much one can extrapolate a booming housing market into the broader economy is debatable, however. "The strength in home sales is a testament to the fact that the current downturn is leaving an uneven imprint on the working population," she wrote, adding that high income individuals have been able to continue working remotely, while many low-income workers have lost their jobs or have been forced to work less to care for children.