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Cheap mortgages helping to fuel the US’s new homes market in 2016

Posted on 16 June 2016

Investors will welcome the news that sales of new homes are rocketing across the US, reaching a level not seen since January 2008, before the economic crash.

The country’s Commerce Department reported recently that new home sales jumped a healthy 16.6 per cent in April 2016, hitting a seasonally adjusted rate of 619,000, up from just 531,000 in the month before. March’s total was also revised higher.

Reasons given for this resurgence include a steady employment market and low mortgage rates, which are giving Americans the confidence to purchase new houses. This trend is fuelling the country’s construction industry and real estate market, and giving support to the economy.

Meanwhile, pending home sales rose for the third consecutive month in April 2016, achieving their highest level in over 10 years, according to the National Association of Realtors (NAR). All major US regions saw gains in contract activity in April, except the Midwest, which saw a slight decline. The Pending Home Sales Index – a forward-looking indicator based on contract signings for homes that have not yet sold – hiked 5.1 per cent higher that month and 4.6 per cent above April 2015.

US mortgage rates have remained below four per cent in 16 of the past 17 months to April. However, pundits cannot say how long it will stay this low. Along with rent growth, rising gas prices – and the fading effects of last year’s cheap oil on consumer prices – could cause a rise in inflation which in turn could cause an increase in rates. In the short-term though, mortgage rates are expected to hover around four per cent in coming months.

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