"The strength of new home sales should generate a little extra consumer expenditures on household items like appliances and furniture, and the spending is sorely needed because the coronavirus is likely to weigh on GDP growth in the first quarter," said Chris Rupkey, chief economist at MUFG in New York.
The Commerce Department said new home sales jumped 7.9% to a seasonally adjusted annual rate of 764,000 units last month, the highest level since July 2007. December's sales pace was revised up to 708,000 units from the previously reported 694,000 units.
Economists polled by Reuters had forecast new home sales, which account for about 12.3% of housing market sales, would advance 3.5% to a pace of 710,000 units in January. New home sales are drawn from permits and tend to be volatile on a month-to-month basis. Sales surged 18.6% from a year ago.
New home sales jumped 30.3% in the Midwest to their highest level since October 2007. They soared 23.5% in the West to levels last seen in July 2006 and rose 4.8% in the Northeast to more than a 1-1/2-year high. Activity was likely exaggerated by warmer temperatures. Sales fell 4.4% in the South, which accounts for the bulk of transactions.
Financial markets have been rattled in recent days by fears that the coronavirus, which has killed more than 2,000 people, mostly in China, and spread to other countries, would undercut global and US economic growth.
The epidemic is seen disrupting supply chains for manufacturers, and hurting the travel and tourism industries. Data firm IHS Markit said last Friday its flash Composite PMI Output Index, which tracks the US manufacturing and services sectors, contracted to a 76-month low in February.
The US Centers for Disease Control and Prevention on Tuesday urged Americans to prepare for the virus to spread in the United States. President Donald Trump said he will hold a news conference to discuss the coronavirus at 6 p.m. EST (2300 GMT) on Wednesday.
Investors have been dumping riskier assets like stocks, with major indexes on Wall Street suffering their worst four-day percentage fall in more than a year. Money flowed into safe-haven assets like US Treasuries, pushing the yield on the benchmark 10-year government bond to a record low.
Money markets have boosted their bets on the prospect of more Fed rate cuts. The US central bank has signaled its intention to keep monetary policy on hold at least through 2020.
On Wednesday, major US stock indexes recouped some losses. The dollar was trading higher against a basket of currencies. Prices of US Treasuries were trading mostly higher.
Goldman Sachs on Sunday cut its first-quarter gross domestic product growth estimate by two-tenths of a percentage point to a 1.2% annualized rate. Growth estimates for the January-March quarter were already on the low side because Boeing halted production of its troubled 737 MAX plane starting last month.
A separate report from the Mortgage Bankers Association on Wednesday showed applications for loans to purchase a home jumped last week from the prior week. Though housing accounts for about 3.1% of GDP, it has a giant footprint on the economy, positioning it to help keep the economic expansion, now in its 11th year, on course.
Home Depot Inc, considered a barometer for the economic health of US households, on Tuesday reported fourth-quarter sales and profit that beat analysts' estimates.
Reports this month showed permits for the future construction of single-family homes jumped in January to the highest since June 2007. The stock of homes under construction in January was the highest since February 2007.
That could help to ease a shortage of homes that has constrained sales and hiked prices. The median new house price surged 14.0% to a record $348,200 in January from a year ago. Sales last month were concentrated in the $200,000-$749,000 price range. New homes priced below $200,000, the most sought after, accounted for less than 10% of sales.
There were 324,000 new homes on the market in January, up 0.3% from December. At January's sales pace it would take 5.1 months to clear the supply of houses on the market, down from 5.5 months in December. Almost two-thirds of the houses sold last month were either under construction or yet to be built.
"Home sales are less likely to be impacted by coronavirus fears in the near term," said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. "Barring a sustained stock market sell-off, new home sales are expected to trend higher this year, reflecting strong job and income growth and more positive demographics."