Sales of new homes rose last month to the highest level in more than a year as strong activity in the U.S. South offset weakness in the rest of the country.
The Commerce Department said Wednesday that sales rose 6.2 percent to a seasonally adjusted annual rate of 430,000 from an upwardly revised 405,000 in September. Economists surveyed by Thomson Reuters had expected a pace of 410,000.
There were 239,000 new homes for sale at the end of October, the lowest inventory level in nearly four decades. At the current sales pace, that's a 6.7 months of supply, down from last winter's peak of more than a year.
"If you're looking for a sign that builders will need to start swinging their hammers again soon, this is it," wrote Mike Larson, real estate analyst at Weiss Research.
The report tallies signed contracts to buy homes, rather than completed sales. Home shoppers in October were acting before lawmakers decided to extend a tax credit for first-time buyers and expand it to some existing homeowners. The credit now covers contracts signed by April 30, and analysts expect it to further the housing recovery in the coming months.
"It's all thanks to the government," said Jennifer Lee, an economist at BMO Capital Markets. Sales are up 31 percent from the bottom in January, but down 69 percent from their peak in July 2005.
The surge in sales was driven entirely by a 23 percent increase in the South. Sales fell about 5 percent in the West and Northeast, and fell 20 percent in the Midwest.
Despite the lack of certainty about the tax credit that buyers faced in October, sales were up 5.1 percent from a year ago, the first yearly increase since November 2005.
The median sales price of $212,200 was almost even with $213,200 a year earlier, but up almost 1 percent from September's level of $210,700.
Last month, Ryder Homes of Nevada Inc. resumed construction on houses at two of its communities around Reno. "We're finding people aren't coming in willing to wait six months," said Rob Dunbar, Ryder's land development manager.
The resale market is also strong. the National Association of Realtors said Monday home resales rose 10 percent from September to October, the biggest monthly increase in a decade. Along with the tax credit, buyers are being attracted by low prices and mortgage rates.
The average interest rate for a 30-year fixed mortgage was 4.78 percent this week, matching a record low set at the end of April, Freddie Mac said Wednesday.