New Home Sales Rise in January
New homes in the U.S. sold at a faster pace than forecast in January, a sign of stabilization in the housing industry.
The 481,000 houses purchased last month at an annualized pace were little changed from a more than six-year high of 482,000 in December, figures from the Commerce Department showed Feb. 25 in Washington. The median forecast of 76 economists surveyed by Bloomberg called for 470,000.
Employment gains and rising household formation are underpinning demand for homes as rents rise. Borrowing costs close to historically low levels and easing credit may help attract more first-time buyers, who have been relatively absent in the uneven real estate comeback.
“Housing is improving on trend very slowly and it’s been a little choppy,” Dana Saporta, director of economics research at Credit Suisse Securities in New York, said before the report’s release. “The underlying fundamentals suggest that it will be on an improving trajectory.”
Estimates for the annualized rate of new home sales among economists surveyed by Bloomberg ranged from 440,000 to 504,000. The reading for December was the strongest since June 2008 and was revised up from a previously reported 481,000.
The report showed a disparity among regions which could reflect the influence of weather. Sales in the Northeast plunged 51.6% to record-low 15,000 annual rate. That was offset by a 2.2% gain in the South, the biggest region, which took purchases there to a more than six-year high of 278,000. Demand in the Midwest also climbed, while the West experienced a small decrease.
The median sales price was $294,300, a 9.1% advance from January 2014, the report showed.
The supply of homes held at 5.4 months at the current sales pace. There were 218,000 new houses on the market at the end of January, the most since March 2010.
New-home sales account for about 7% of the residential market and are tabulated when contracts are signed, making them a timelier barometer than purchases of previously owned dwellings. The latter are calculated when a contract closes, typically a month or two later.
In 2014, builders sold 437,000 new houses, the most since 2008. The market peaked at a record 1.28 million in 2005 and slumped to 306,000 in 2011 after the housing bubble burst, the lowest in figures going back to 1963.
Other data demonstrate a fragile recovery. Existing home sales dropped more than expected in January as prices accelerated and inventory declined, figures from the National Association of Realtors showed Feb. 23. Purchases fell 4.9% from December to a 4.82 million annualized rate, the least since April, and first-time buyers accounted for a smaller share of purchases for a second consecutive month.
The number of previously-owned homes available on the market dropped 0.5 % from a year earlier, according to NAR Chief Economist Lawrence Yun. Owners are opting to hold on to their homes for about 10 years on average, compared with the more normal seven years, he said.
That’s translating into more spending on home upgrades, a welcome development for Home Depot Inc., the country’s largest home improvement retailer. The Atlanta-based chain took advantage of a surge in renovation spending, reporting fourth-quarter profit that topped analysts’ estimates.
“We had a strong finish to the year, as strength across the store, the recovering U.S. housing market and solid execution aided our business in 2014,” Craig Menear, the company’s chairman, CEO and president said in a Feb. 24 statement.
The company, which Menear has led since November, said it improved customer service, streamlined online operations, and invested in new distribution centers and inventory systems to keep stores better stocked. The result was profit excluding some items of $1 a share in the three months through Feb. 1.
That positive sentiment was not shared industry-wide. Figures Feb. 18 showed homebuilder confidence waned to a four-month low in February as frigid winter weather kept prospective customers from touring new developments.
That was also reflected in construction data showing builders broke ground on fewer residential projects in January as demand for single-family homes cooled from an almost seven-year high.
Federal Reserve Chair Janet Yellen acknowledged the sluggish growth in her Feb. 24 testimony to the Senate Banking Committee, while signaling that the Fed would adopt a flexible approach to raising interest rates.
”Housing construction continues to lag,” Yellen said. “Activity remains well below levels we judge could be supported in the longer run by population growth and the likely rate of household formation.”
Greater household formation could be spurred by a strengthening labor market. Payrolls steamed ahead in January, capping the greatest three-month gain in 17 years.
For those who can purchase a home, there is incentive to lock in historically low borrowing costs. The average rate on a 30-year, fixed mortgage was 3.76% in the week ended Feb. 19, according Freddie Mac in McLean, Virginia. It reached a low of 3.31% in November 2012.
