The Low End of the New Home Market Is Starting to Get Hot: Sales of new homes priced from $150,000 to $299,999 are the strongest since 2008

[Mardochee Pierre]

Note to America's builders: less-expensive homes are starting to move.

Purchases of new homes climbed 7.8 percent from the previous month to a seasonally adjusted 539,000 annualized pace in February, a seven-year high, according to the latest U.S. government report. Perhaps the best news for the housing industry as a whole came in the breakdown of sales, by price.

Americans signed contracts to purchase 17,000 new houses in the $200,000-to-$299,999 price range last month, the most since March 2008. That amounts to 39 percent of the 44,000 properties sold in February (unadjusted and not annualized). Another 8,000 homes—the most in nine months—sold in the range of $150,000 to $199,999.

February marked the third straight month of increased sales of homes priced from $150,000 to $299,999. The pickup may hint at greater demand from lower-income Americans. Even with mortgage rates near historical lows, limited wage growth, stricter loan standards, and high student debt loads have made it difficult for many to take the plunge.

The apartment vacancy rate was 4.2 percent in the fourth quarter, hovering close to a 13-year low, according to property-research firm Reis. Rents climbed 3.2 percent last year, the most since 2008, according to Bureau of Labor Statistics data. As rents rise, the job market continues to strengthen, and builders respond with more affordable housing, homeownership becomes more appealing. That's what's needed to give residential construction a second wind.

Since the recession ended, "it's been a rich man's housing recovery," says Carl Riccadonna, chief U.S. economist at Bloomberg Intelligence. Granted, winter weather and how the government adjusts the data during this time of year open up the possibility of a false start, but "we may be seeing the tip of the iceberg of a more broad-based housing recovery" as economic conditions have started to improve for the lower-income demographic groups, he says.