Sales of new homes unexpectedly rose last month, as many homebuyers seized on builder discounts and rushed to take advantage of expiring down payment assistance programs and other incentives.
Economists had expected sales of new, single-family homes to drop from August levels, but instead they rose 2.7 percent in September to a seasonally adjusted annual rate of 464,000 homes, the Commerce Department reported Monday.
Many homebuilders had ramped up incentives in August and September to capitalize on the end of seller-funded down payment assistance programs on Oct. 1. Builders also likely benefited from another factor motivating homebuilders: an increase from 3 percent to 3.5 percent in the down payment required to qualify for a Federal Housing Administration-insured loan, which also took effect Oct. 1.
Builders' discounts helped push down the median price of a new home to $218,400, or 9.1 percent below what it was a year ago. That means prices have rolled back to what they were four years ago.
Despite the surprising increase in September, sales were still 33 percent below a year ago and off almost 68 percent from the peak in July 2005.
The positive upward turn in sales was blunted somewhat by the government's decision to revise August sales to a decline of 12.6 percent — sharply lower than the initial estimate.
The housing market is the worst it has been in decades, and tight credit markets, souring consumer confidence, and rising unemployment haven't helped.
"We still have a very difficult road ahead that will require additional government action to speed the recovery of housing and the national economy," Sandy Dunn, chairman of The National Association of Home Builders, said in a statement.
The trade group renewed its call for Congress to enact a new housing stimulus package to help spur homebuyers.
Last Friday, the National Association of Realtors said sales of existing homes rose 5.5 percent in September, the largest monthly gain in more than five years.
Analysts, however, noted that the September gains came before the latest upheavals in financial markets which have raised new worries about the overall state of the economy.
Many analysts believe the country has already entered a recession. They are forecasting significant increases in job losses, which could lead to more foreclosures and choke off demand.
New home sales fell by about 21 percent in the Northeast and were down 5.8 percent in the Midwest. They rose almost 1 percent in the South and jumped by a sharp 23 percent in the West — a region of the country which has seen some of the biggest declines in prices, a development which has spurred sales.
Robert Stevenson, an analyst with Fox-Pitt Kelton, said it's hard to say whether there's a trend brewing from one month's sales data.
He noted that even though new home sales in the West soared last month, that increase didn't make up for the 30 percent drop in August.
"At the end of the day, you're still below where you started, Stevenson said.
The overall rise in home sales last month left a total of 394,000 unsold new homes on the market at the end of September, down a record 25 percent from a year ago.
That's good news for builders, who have cut back production to bring inventories in line with sales. But even with the latest drop in unsold homes, the stock represents a 10.4-month supply at the September sales pace, still a historically high level.