• New home sales increased 5.7 percent in August from July, to 552,000 units (SAAR).
• The pace of growth of new home sale prices has slowed substantially from a year ago, and prices have been roughly flat for two straight months.
• Growing numbers of under construction homes bode well for new home sales and inventory in the coming months.

New home sales increased for the second consecutive month in August, up 5.7 percent from July to 552,000 units at a seasonally adjusted annual rate (SAAR), according to the U.S. Census Bureau (figure 1). July home sales were also revised upward, from 507,000 units to 522,000 units, a 12 percent bump from June, compared to a previously announced monthly rise of 8.8 percent.

New home sales were up 21.6 percent year-over-year in August, and the three-month moving average of annual percent changes is now 21.8 percent. This recent growth is approaching the pace seen in late 2012 and early 2013 when the housing market was first emerging from the depths of the recession, and is slightly above the pace of growth observed during the early 2000s. New home sales remain 60 percent below their July 2005 peak of 1.39 million units (SAAR), and on par with sales volumes observed during the early 1990s.

The median seasonally-adjusted price of new homes sold in August was roughly flat from July, at $292,700, and is up slightly (0.4 percent, or about $1,000) from a year ago. The pace of growth in new home prices has slowed substantially over the past year. For much of 2014, the median price of new homes sold was increasing at an annual rate of between 5 percent and 10 percent. Now, the pace of growth has been essentially flat for two consecutive months (figure 2), good news for first-timers and other younger potential buyers that may be struggling to save and keep pace with rapid price growth.

In addition to stabilizing prices, there is more good news for new home shoppers. Inventory of under-construction homes has been steadily increasing. Of the 221,000 unsold new homes at the end of August, 135,000 (61 percent) were under construction (figure 3) – toward the upper end of its historical range and up from 53 percent in February of this year. Although demand for new homes has largely been keeping pace – or even outpacing – new home construction in recent years, supply gradually appears to be ramping up.