New Home Sales Reach Highest Level in More Than Six Years

Clean exterior home during late spring season

Over the past few years, the American housing market has recovered from the housing bubble in fits and starts, surging in some areas while lying dormant in others. However, the Wall Street Journal recently revealed some encouraging news: in December 2014, new home sales rose to their highest level in more than six years, suggesting the industry could see some renewed momentum in the coming year.

On Tuesday, January 27, the Commerce Department announced that sales of newly built, single-family homes increased 11.6% from November to December, reaching a seasonally adjusted annual rate of 481,000. This was not only the best showing since June 2008, but also served as a pleasant surprise to many economists. Experts had predicted that sales would only reach 450,000.

Despite these positive numbers, however, it is too early to forecast economic improvement. The sales of new homes represent a mere one-tenth of the overall housing market, and monthly figures are frequently revised. October and November, for example, were recently updated by as much as 11,000. Because of these factors, December’s rates had a margin of error of 16.5 percentage points, making it wise to wait before predicting a new trend.

However, this has not prevented some people from trying to determine what exactly could be causing the increasing sales. The possible trend could be connected to traditional factors, such as lower mortgage rates and solid labor market activity. However, warmer weather across the continental U.S., increasing employment rates, lower gas prices and confident consumers are also believed to be supporting the sector.

Many U.S. builders say they are seeing the improving sales in action: on January 26, D.R. Horton Inc., one of the largest construction companies in the country, reported a 35% increase in sales contracts to 7,370 houses. Their sales pace this January has also accelerated thus far. However, other companies reported less dramatic successes: NVR Inc., parent company of Ryan Homes, registered a 3% gain, reaching 2,713 homes.

To make matters worse, the National Association of Realtors reported that sales of existing homes totaled 4.93 million in 2014, down 3.1% from the year before. As these sales account for around 90% of all purchases in the U.S., this detracts from the possibility of an overall ability. But it might indicate a purchasing shift: groundbreakings for single-family homes also rose last month to the highest level since March 2008, although they were still below historical standards.

Perhaps prospective homebuyers are beginning to dip their toes back into the housing market waters in the most affordable and effective way they can see. While the median price of a new home had increased from 275,500, reaching $298,1000 in December 2014, new homes have a number of cost-effective benefits, including 17% increased energy efficiency. Could these advantages be creating a new trend that will help heal the housing industry? Only time will tell.

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