New-home sales rise as supply starts to wane
Thursday, November 26, 2009
Sales of newly built homes rose to the highest level in more than a year while the supply of these homes dropped to new lows, according to government data released Wednesday.
Purchases of single-family homes rose 6.2 percent in October from September to a seasonally adjusted annual rate of 430,000, the Commerce Department reported. The jump was driven by activity in the South. That region, which includes the Washington area, posted a 23 percent gain, while sales in the other three regions of the country slipped. Sales were up 5.1 percent from a year earlier.
The data provide more evidence of a continued, but fragile, recovery in the housing market. The upbeat sales figures add to the pattern of improvement seen in other economic indicators, including a report earlier this week of a surprising 10.1 percent surge in sales of existing homes in October.
Low prices and historically low interest rates helped boost sales last month, as they have in previous months. But an $8,000 tax credit for first-time buyers -- which was to expire Nov. 30 but was recently renewed -- did not have as much of an impact on new-home purchases in October as it did with sales of previously owned homes, analysts said.
That's because the data for new homes capture contract signings in October. Most buyers of newly built homes would not be eligible for the tax credit until months after signing a contract, when the home is built and the sale is completed. The Nov. 30 deadline would have been out of reach.
"It's highly unlikely that the buyers in October were motivated by the tax credit," said Patrick Newport, an economist at IHS Global Insight.
Sales of new homes are generally dwarfed by activity in the existing homes market, which made up more than 90 percent of sales last month. But new-home sales are closely tracked because the construction industry contributes to job creation and economic growth.
"A 6 percent gain is nothing to sneeze at," said Michael Larson, a housing analyst at Weiss Research. "It's definitely better than expected."
The report also showed that the median home price fell to $212,000 in October from a year ago, the smallest year-over-year drop since January, Larson said.
Meanwhile, the supply of new homes has plummeted to the lowest level in nearly four decades. The report shows that the raw number of new homes plunged to 293,000 in October. "You'd have to go back to May 1971 to find a lower reading," Larson said. If sales continue at the current pace, the supply of new homes would last another 6.7 months.
The sales data follow disappointing results earlier this month that showed that home construction took an unexpected 10.6 percent tumble in October. But "if you're looking for a sign that builders will need to start swinging their hammers again soon, this is it," Larson said.