Financial FAQs

The Polar Vortexes haven’t stopped everything.  It looks like new-home sales are picking up in midwinter, a sign that existing-home inventories are too low. Sales of new single-family houses in January 2014 were at a seasonally adjusted annual rate of 468,000, according to estimates released jointly today by the U.S. Census Bureau and HUD. This is 9.6 percent above the revised December rate of 427,000 and is 2.2 percent above the January 2013 estimate of 458,000.

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Graph: Calculated Risk

It was the highest sales rate since 2008, the end of the housing bubble. But inventories are still too low, which means new-home sales will continue to increase as more housing construction comes on line, with close to 1 million units already in the construction pipeline. The months of supply decreased in January to 4.7 months from 5.2 months in December.

existsupply

Graph: Calculated Risk

The problem is obvious from this graph. Inventories have returned to levels that prevailed from 1997 to 2005, a prolonged period of pent up demand for housing that, along with prolonged easy credit conditions, caused the housing bubble.

January’s data show a big 10.4 percent gain in the South which is by far the largest region for new home sales. The West, which is a distant second behind the South, shows an 11.0 percent gain.

A plus for sales has been recent price concessions as the median price is down 2.2 percent to $260,100. The year-on-year sales gain, which spent most of last year in the double digits, is now modest, at 3.4 percent and in line with the 2.2 year-on-year gain for sales.

This is while total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, dropped 5.1 percent to a seasonally adjusted annual rate of 4.62 million in January from 4.87 million in December, and are 5.1 percent below the 4.87 million-unit pace in January 2013.

So new-home sales are surging, and will continue to surge, as long as existing inventories are so low. Last month’s existing-home activity was the slowest since July 2012, when it stood at 4.59 million, and signals the effect of low inventories and rising interest rates that have cut mortgage applications to their lowest level in a year.

Harlan Green © 2014

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