Ahead of the Bell: US New Home Sales

The Associated Press

U.S. sales of new homes were probably little changed in October after rising in September to the fastest pace in more than two years. Stable sales would support the view that the housing market is steadily recovering.

Economists forecast that new homes sold last month at a seasonally adjusted annual rate of 388,000. That's down only marginally from 389,000 in September, according to a survey by FactSet.

The Commerce Department will release the report at 10 a.m. Eastern.

New home sales rose 5.7 percent in September to the highest rate since April 2010, when a federal homebuyer tax credit inflated purchases. Sales were also 27.1 percent higher for the 12 months ending in September, the strongest yearly gain since February.

Even with the increase, new home sales are still below the annual rate of 700,000 that economists consider healthy.

Still, the gains support other data that show a slow but sustainable recovery under way in housing. Home prices are rising, home sales are up, and builders are starting work on more new homes and apartments.

A big reason for the rebound is that the excess supply of homes that were built during the housing boom has finally thinned out. The number of previously occupied homes available for sale has fallen to a 10-year low. The inventory of new homes is also near the lowest level since 1963.

At the same time, more people are looking to buy or rent a home after living with relatives or friends during and immediately after the Great Recession. And mortgage rates have been near record lows all year, making homes more affordable.

Sales of previously occupied homes are near five-year highs, excluding temporary spikes in 2009 and 2010 when a homebuyer tax credit boosted purchases. Builders, meanwhile, are increasingly confident that the recovery has legs. A measure of their confidence rose to the highest level in six and a half years this month. And builders broke ground on new homes and apartments last month at the fastest pace in more than four years.

The Standard & Poor's/Case-Shiller home price index, released Tuesday, found that prices rose in most major cities in September compared to August. They rose 3.6 percent in the third quarter compared to the same period last year.

There are still factors dragging on a housing recovery. Many Americans, particularly first-time homebuyers, are unable to qualify for a mortgage or can't afford larger down payments.

Though new homes represent only a small portion of the housing market, they have a disproportionate impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to statistics from the National Association of Home Builders.