Purchases of new homes surged in December to the highest level in 10 months, closing out the best year for housing since 2007.
Sales jumped 10.8% last month, the most since August 2014, to a 544,000 annualized pace, a Commerce Department report showed Wednesday. The Bloomberg survey median called for a 500,000 rate. For all of 2015, purchases of new properties climbed 14.6% to 501,000.
Employment gains and attractive mortgage rates combined to push new-home sales forward for a fourth straight year. Sustained hiring and income growth would provide further impetus for the market, encouraging more construction and contributing to the economy.
"Demand is outpacing supply at extreme levels," said Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York. "Job growth continues to outpace expectations. We should continue to see housing flourish in 2016."
Estimates in the Bloomberg survey median ranged from 478,000 to 550,000.
The median sales price decreased 4.3% from December 2014 to $288,900, the report showed.
Purchases increased in all four U.S. regions, led by a 31.6% jump in the Midwest. Sales climbed 21% in the West.
The supply of homes at the current sales rate dropped to 5.2 months from 5.6 months in the prior month. There were 237,000 new houses on the market at the end of December compared with 231,000 a month earlier.
The number of homes sold and awaiting the start of construction climbed to 178,000 in December, the highest since July 2007 and a sign that builders will be busy leading up to the spring sales season.
As concerns about the global economy have mounted and prompted a flight to the safety of U.S. Treasury securities, borrowing costs have declined for consumers since the Fed’s decision. The average rate on a 30-year fixed mortgage was 3.81% in the week ended Jan. 21, down from 3.97% in mid-December.
That's prompted an increase in mortgage applications for home purchases. The three-month average of the Mortgage Bankers Association's index that tracks those applications is the highest since 2010.
New-home sales, tabulated when contracts get signed, are considered a timelier barometer of the residential market than purchases of previously owned properties. The latter are calculated when a contract closes, typically a month or two later, and account for about 90% of the market.
The new-home sales report follows other recent data that indicate steady progress for the industry.
Existing-home sales climbed more than projected in December to wrap up the best year since 2006, the National Association of Realtors reported on Jan. 22. Prices of previously-owned dwellings climbed as the supply of houses on the market was the smallest of any December since 1999.
"We're seeing a dramatic shortage of inventory in the existing-homes market," Oubina said. "That's an opportunity for the new-home market."
Last year, 5.76 million new and previously owned homes were sold, the most since 2007 and a 7.1% increase from 2014.
The job market has been a pillar for housing. A jump in December payrolls capped the best back-to-back years for employment since 1998-99, and the unemployment rate is hovering near eight-year lows. At the same time, worker pay is sluggish. Average hourly earnings have been mostly stuck in the 2% range since the expansion began in mid-2009.
Prospective homebuyers may continue to benefit from low borrowing costs even after the Federal Reserve raised its benchmark interest rate in December for the first time since 2006. Central bank policy makers, who've said further moves will be gradual, are due to release a statement following their meeting on Wednesday.
