Sales of new US single-family homes surged to a 5-1/2-year high in January, but the bounce was likely to be short-lived amid signs of a broader weakness in the housing market. The report on Wednesday also bucked the recent trend of weather-driven weak data, leading many perplexed economists to downplay the supposed strength in the market for new homes.
"In the best of months, the new home sales report is not the most reliable statistic, and in winter months it is even less reliable, so it is hard to discern much of a signal," said Michael Feroli, an economist at J.P. Morgan in New York. The Commerce Department said sales jumped 9.6 percent to a seasonally adjusted annual rate of 468,000 units, the highest level since July 2008. Economists had expected sales to fall to a 400,000-unit pace. New home sales are measured when contracts are signed, which should make them more sensitive to the weather than home resales, which are based on contract closings. Resales in January showed a hit from unseasonably cold weather, as did groundbreaking for new homes.
The new home sales report, however, showed little sign the cold temperatures had an effect. Sales in the Northeast soared 73.7 percent to a seven-month high, while the South recorded a 10.4 percent rise to a more than five-year high. These regions along with the Midwest, where sales tumbled 17.2 percent, experienced unusually cold weather last month. In the West, sales rose 11 percent. New homes, which constitute about 9.2 percent of the housing market, tend to be volatile on a month-to-month basis, and US financial markets were little moved by the data.
"Any consideration of new home sales has to keep in mind that these data are badly measured," said Ted Wieseman, an economist at Morgan Stanley in New York. Reports last week showed sales of previously-owned homes tumbled to a 1-1/2 year low in January and housing starts recorded their biggest decline in nearly three years. Sentiment among homebuilders plunged in February, with builders citing freezing temperatures and a lack of materials. They were also downbeat about current and futures sales.
The housing market lost momentum in the second half of last year, reflecting a run-up in mortgage rates, a shortage of properties for sale and higher prices. Rates on 30-year fixed mortgages are about a full percentage point higher than they were a year ago, although they have come down a bit since hitting a two-year high in September. A separate report on Wednesday showed applications for loans to purchase homes fell 4 percent last week from a week earlier, hitting their lowest level since 1995.
"The positive momentum in new home sales is likely to be short-lived, as the drop in homebuilders' confidence suggests that new home sales activity may have fallen off significantly in February," said Millan Mulraine, deputy chief economist at TD Securities in New York. Last month, the supply of new houses on the market was unchanged at 184,000 units. New house inventories are likely to remain lean for awhile, with builders complaining about a lack of lots, materials and skilled labour. With the pace of growth in household formation falling sharply last year, housing activity could remain constrained for some time.
The median price of a new home last month rose 3.4 percent from the year-earlier level to $260,100. The pace of price increases, however, has slowed in recent months. At January's sales pace it would take 4.7 months to clear the supply of houses on the market. That was the fewest number of months since June and was down from 5.2 months in December. A supply of 6.0 months is normally considered a healthy balance between supply and demand.
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