New U.S. home sales vaulted to a five-year high in June, while other data on Wednesday showed an acceleration in factory activity in July, boosting hopes of a third-quarter pick-up in economic growth.
Showing no signs yet of slowing in the face of higher mortgage rates, single-family home sales increased 8.3 percent to a seasonally adjusted annual rate of 497,000 units, the highest level since May 2008, the Commerce Department said.
Economists, who had expected sales to advance only to a 482,000-unit rate, said buyers sitting on the fence had probably rushed into the market to lock in lower rates in anticipation of mortgage rates moving even higher.
“The recent increase in mortgage rates hasn’t slowed demand as long as home affordability remains high,” said Bob Walters, chief economist at Quicken Loans in Detroit. “We are, however, seeing an increased urgency from potential new home buyers as they move to secure today’s historically low rates.”
Though the government revised down sales from March through May by a total 38,000 units, the overall tone of the report was bullish. Compared with June last year, single-family home sales were up 38.1 percent, the largest increase since January 1992.
There had been worries that higher borrowing costs could crimp the housing market recovery after a report on Monday showed a surprise drop in home resales in June.
Mortgage rates have been rising in anticipation of the Federal Reserve starting to reduce its massive monetary stimulus later this year. According to Freddie Mac, the 30-year fixed mortgage rate increased 0.53 percentage point in June to 4.07 percent, its highest level since October 2011.
Still, mortgage rates, which edged lower last week, remain low by historical standards and economists, including Fed Chairman Ben Bernanke, believe the fundamentals in the housing market are strong enough to withstand the rise in borrowing costs.