New-home sales hit 2-year high

New home sales hit a two-year high in September.

NEW YORK (CNNMoney) -- In another sign of a housing market recovery, new-home sales rose in September to the highest level in more than two years, according to a government report released Wednesday.

Sales sold at an annual rate of 389,000 homes in the month, according to the Census Bureau report, up 5.7% from the 368,000 sales pace in August. The last time sales were at this pace, in April 2010, they were being helped by a short-term home buyer's tax credit.

How to Spot a Recovering Market

If key local sales indicators beat the U.S. averages (as they do in the areas below), your market is probably picking up -- and prices will soon follow.

Metro Area	Percentage With Drop In List Price	Days Listed On Zillow	Sale-to-List Price Ratio
San Jose	16.5%	51	1.01
Cheyenne, Wyo.	21.7%	88	1.08
Clarksville, Tenn.	30.6%	103	0.98
National Average	30.7%	113	0.97

NOTE: Zillow, based on June 2012 data.

This time, new home market has been showing steady signs of improvement. The pace of home building hit a four-year high in September, according to a separate government report. The year-over-year sales improvement in September reached 27.1%.

The improvement in the market is part of a broader recovery in real estate, helped by a number of factors all coming together.

Mortgage rates are near record lows, pushed down by the Federal Reserve's decision to buy $40 billion in mortgages to spur greater economic growth. The low rates, coupled with years of weak home sales, have resulted in affordable housing prices. Recently, home prices have started to rise, which is attracting buyers who were waiting for prices to bottom out.

There has also been a drop in unemployment, a positive development for people looking for mortgage loans.

Foreclosures have fallen to a five-year low, reducing the supply of distressed homes available on the market.

Related: Is buying rental property now a sure bet?

The median price of a new home sold during the month was $242,400, down 3.2% from from the August reading but up 11.7% from a year earlier.

The upward pressure on prices over the last year is helped by the tight supply of new homes on the market. The report showed inventories fell to 4.5 months, the tightest supply of homes since August 2005, near the height of the housing bubble.

Related: Housing is indeed heading higher

Still the pace of new-home sales is still far below the levels seen during the housing bubble of the last decade, when new home sales topped 1 million every year between 2003 and 2006.

First Published: October 24, 2012: 10:23 AM ET

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