New home sales rise for second time in three months

Before you go, we thought you'd like these...
Before you go close icon
Call it more modest progress in the U.S. housing sector. New home sales rose 0.3 percent in April, the U.S. Commerce Department announced Thursday, a minor rise, but one that stock market bulls will likely interpret as another sign that the U.S. recession is bottoming. Moreover, it was the second rise in new home sales in three months.

April sales rose to seasonally-adjusted annual rate of 352,000. Economists surveyed by Bloomberg News had expected April new home sales to register a 360,000 annualized rate. March new home sales were revised to 351,000 from the previously-released 356,000.

Although April's rise was modest, new home sales appear to have formed a bottom near the 329,000 low hit in January, although economists are quick to caution investors that a double-dip bottom -- or a renewed decline in new home sales -- is possible.

New home sales rose 1.9 percent in the South, were flat in the Northeast and Midwest, but fell 3.8 percent in the West. Further, sales are still down 34.0 percent compared to year ago.

Also, the median price for a new home remained in the 'seller's lament' category: down 14.9 percent during the past year to $209,700. However, that median price represents an increase compared to the $202,200 price recorded in March, which was the lowest median price since late 2003.

Not much, but he'll take it

Adam York, an economist for Wachovia Corp. in Charlotte, N.C., says the April new home sales data is not the stuff of the 'Roaring 20s,' but given the enormous losses and contraction in the housing sector in the last 2 years, he'll take it.

"The good news is probably the continued improvement in inventory levels," York told Bloomberg News Thursday. "We'll take the improvement in the new-home market as a sign we're getting closer to the bottom and we might see some stability in the housing market by the summer."

Regarding inventories, they declined to a 10.1-month supply in April from a 10.2-month supply in March.

Further, inventories have declined about 34 percent in the past year – a large decline. However, economists underscore that the aforementioned inventory decline originated in a housing market bloated with foreclosed home, builders' speculative excesses, and a large supply of homes by typical Americans unable to sell their homes at what they consider an acceptable price, due to a lack of buyers. A healthy, normal new home sale market typically has a 3-5 month supply of homes on the market.

Investors should follow the new homes sales statistic because, historically, increases in home sales are strongly correlated with increased demand and an economic expansion. That's because housing activity does not operate in vacuum. When new homes are sold, homeowners tend to buy durables goods / big ticket items for the new home: furniture, appliances, home supplies – an uptrend in each of which is good news for the economy and bullish for the U.S. stock market.

Housing Analysis: Another modest positive for the housing sector: April's new home sale data suggests new home sales are forming a bottom. Further, when combined with the 2.9 percent increase in existing home sales in April to 4.68 million units, the outline of the low-point in housing demand can be seen. That said, inventories of both new and existing homes are at very high levels – recession levels – and we'll need a catalyst to propel sizable, sustained gains in both new and existing home sales, moving forward, economists agree. So far, that catalyst has not surfaced in the U.S. economy.
Read Full Story

Sign up for Breaking News by AOL to get the latest breaking news alerts and updates delivered straight to your inbox.

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners