A surge in home-buying demand and limited inventory for existing homes is spurring construction to help fill the gap.
Home builders attribute their robust sales to low interest rates, a shortage of existing homes for sale and consumer willingness to move farther from city centers in exchange for more space.
New single-family-home sales rose 13.9% in July from June to a seasonally adjusted annual rate of 901,000, the highest level since December 2006, according to the Commerce Department. Single-family housing starts, a measure of U.S. home building, rose 8.2% in July from June to the highest seasonally adjusted annual rate since February.
“The demand feels really good right now,” said Martin Connor, chief financial officer of Toll Brothers Inc. “The longer it goes, the more comfortable we are that it’s got longer legs.”
The strength in the home-building sector underscores the uneven nature of the economic recession, which has hit low-wage workers especially hard. While millions of workers have lost their jobs in recent months, those who are still employed have saved more money due to the pandemic and can take advantage of record-low mortgage interest rates.
Home builders’ positive outlook is a sharp turnaround from early spring, when coronavirus lockdowns forced construction sites to halt in some parts of the country and builders swiftly cut spending on land acquisitions and new projects. U.S. home-builder confidence rose in August to match the record high last reached in 1998, up from an eight-year low in April, according to the National Association of Home Builders.
The S&P Homebuilders Select Industry Index is up 15.3% this year as of Monday, exceeding the 8.3% rise in the S&P 500 over the same period, according to FactSet.
Home builders also are benefiting from demographic changes, as younger millennials are entering their early 30s and accounting for a growing portion of home sales. Booming demand also has pushed sales of previously owned homes to multiyear highs.
Housing demand has outpaced supply for years, but the housing shortage has become even more acute in the existing-home market in recent months as the pandemic has made some sellers reluctant to list their homes. At the current sales pace, there were 3.1 months of existing homes available for sale at the end of July, according to the National Association of Realtors. In comparison, the new-home market had 4.0 months’ supply available at the end of July, according to the Commerce Department.
When Stephanie and Sven Christensen moved to Grand Haven, Mich., this year for Mr. Christensen’s job, they couldn’t find anything on the market that fit their needs. They decided to build a new house instead.
“We’re super, super excited,” Ms. Christensen said. But “we would have much preferred to find a house that would work for us that we could just buy and move into.”
In response to the strong demand, home builders are raising prices. The median sales price of a new house sold in July was $330,600, up 7.2% from a year earlier.
Home builders are limited in how quickly they can grow due to shortages of skilled labor, delays in obtaining some appliances and rising land costs, said Ali Wolf, chief economist at Meyers Research.
Lumber futures also have climbed to a record high, pushing the cost of building a single-family home up by more than $16,000 since mid-April, according to the NAHB.
Eighty percent of builders in August said challenges on the supply side are going to affect their sales plan this year, up from 30% in June, according to a Meyers Research survey.
“You can’t just build 25% more houses,” said Sheryl Palmer, chief executive of Scottsdale, Ariz.-based Taylor Morrison Home Corp. “We just won’t be able to meet the demand overnight.”
Housing economists say high unemployment could also limit home sales in the coming months, especially if job losses spread to affect more high-paid workers.
Ty Andersen paid a deposit on a townhome under construction in Bluffdale, Utah, in April, before being laid off from his digital-marketing job in May. He hopes to find a new job before he applies for a mortgage loan in the fall.
“I’m beginning to worry more” about the home purchase falling through, he said. “I just keep pushing forward with the hope that I will find a job and that it will work out.”
—Mark Maurer contributed to this article.