Nothing, including the highest mortgage rates in over 20 years, stops Americans from buying newly constructed homes.

Defying forecasts, new home sales rose 4.4% to an 18-month high of 714,000 last month, according to data from the U.S. Census Bureau. The Midwest stood out with a near 50% leap.

The estimated 437,000 new houses for sale at the end of July provide 7.3 months of supply at the current sales rate. Meanwhile, median new home prices dropped from $478,200 to $436,700 from a year ago.

Buyers want new homes, not old ones

While homebuyers are snapping up newly built homes in droves, existing home sales—where supply is limited due to locked-in mortgages —just hit a 3-year low.

For many homeowners, keeping their current home is a much better option than financing a new purchase due to record prices and inflated mortgage rates.

Although new home sales prices softened in today's report, Redfin says nationwide prices were up 1.8% in July last year.

Can this growth keep up?

According to a survey by Zillow, 50% of buyers today are first-time buyers. That's up from 45% last year and 37% the year before.

Affordability is often the biggest obstacle for first-time buyers, and Zillow said it takes the typical first-time buyer nearly 12 years to save for a deposit.

In fact, new data on mortgage approvals shows that inflated prices with 20-year high mortgage rates are starting to put a strain on would-be homeowners.

The Mortgage Bankers Association index of home-purchase applications fell 4.2% from the previous week to the lowest since 1995.

Driving the recovery

The unexpectedly high demand for newly constructed housing is expected to play a significant role in cushioning the economy from a recession.

Already, reduced supply backlogs and a welcome drop in the cost of building materials have led to several upward revisions to Q3 economic forecasts.

The last reading of the Atlanta Fed GDP Now index on August 16 estimated that residential investment will contribute 0.42% of the total 5.8%.

That's quite significant. Residential investment hasn't made a meaningful contribution to the GDP Now index since Q1 2022—and has been mostly negative until now.

Homebuilders have been winners

While new home sales are knocking out of the ballpark, building permits for July are down sharply from last year.

Tight supply means home prices—and homebuilder margins—are likely to persist. Meanwhile, homebuyers will keep buying off-plan rather than shopping around at open houses.