New Home Sales Unexpected Gain Due to Low Mortgage Rates?

The Census Bureau reported new home sales that were unexpectedly up from the previous 1,165,000 home sales pace of August 2003.

The new home sales were up in all regions of the country expect the West... (Las Vegas slowing and the high price of California's new homes?) which was down .8%. Interestingly the median sales price of new homes was also down about 3% to $197,000.

I believe the main reason for the surprise increase is due to the low mortgage rates of the previous three months which came down for over 6%. This makes homes seem much more affordable and many will enter into a contract.

A major difference of the new homes sales report is that it is based on sales contracts... not closed transaction. That means that these properties may still take months before being completed and may eliminate some of the contracts if mortgage rates climb and borrowers no longer qualify for a loan.

This is the second housing report that came in higher than expected. The NAR report indicated increases in existing home sales also.

Thanks for Reading.
Jessie J. Beaudoin