New-Home Sales-Ownership Rate Rising

The Mortgage Corner

New home sales shot up 19 percent in September to a consensus crushing annualized rate of 667,000. This is the largest percentage gain in 28 years and the highest level of the cycle, since October 2007. In stark contrast, existing home sales, the green line, haven’t shown any kind of bounce.


Graph: Econoday

Homeownership is also rising. The Census Bureau last week reported that ownership increased to 63.9 percent in the third quarter, the highest level since 2014. The rate was up from 63.7 percent in the second quarter and 63.5 percent a year earlier. It is creeping up to the 65 percent historical ownership rate, but it remains below the 69 percent clocked at the peak of the housing bubble a decade ago.

What does this mean? Firstly, the housing supply is catching up with demand, and it will take some pressure over rising rents. The rise in homeownership comes as other forces weaken the rental market, including a surge in supply from developers hoping to cash in on rising rents. In September, the seasonally adjusted rate of apartments under construction was 596,000, nearly twice the long-term average of 300,000 units, according to U.S. Census data.

The new housing supply boosted the national vacancy rate to 4.5 percent in the third quarter of this year, compared with 3.5 percent a year earlier, according to John Chang, head of research for real-estate services firm Marcus & Millichap. Nationally, rents were up 3.5 percent between the third quarters of 2016 and ’17, compared with 4.5 percent the previous years, he said.

And it is the millennial generation, children of the baby boomers and the largest generation ever, that are boosting homeownership rates as they begin to marry and raise families. Their marriage rate over the next five years will likely play an important role in demand for apartments and houses, according to Dr. Chang.


The market is not so good for existing-home sales. Econoday reports the red line of pending sales shows the pending index flat at 106.0 and existing homes likely to hold near 5.400 million. Resale prices ($245,100 median) are far lower than new homes ($319,700), but it’s not helping sales. It peaked in January and has been trending down ever since.

But if construction and new-home sales continue to pick up, it will move more millennials out of their rentals. They are taking their time to nest, and the oldest of those born from approximately 1980 to 1996 will soon be approaching 40 years of age.

Sales haven’t declined more because mortgage rates are holding @ 3.50 percent for a 30-year fixed conforming loan with 1 origination point, and 3.625 percent for the so-called Hi-balance 30-year conforming rate in high-expense states and regions.

This is actually an incredible number, as interest rates this low in the eighth year of the recovery from the Great Recession attests to the severity of the recession, and fact that household incomes are only beginning to recover.

Harlan Green © 2017

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About populareconomicsblog

Harlan Green is editor/publisher of, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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