New Home Sales Surge Nearly 10% in January

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New Home Sales Rise Sharply In January
Justin Sullivan/Getty Images
By Lucia Mutikani

WASHINGTON -- Sales of new U.S. single-family homes surged to a 5½ year high in January, possibly easing concerns of a sharp slowdown in the housing market.

The Commerce Department said Wednesday that sales jumped 9.6 percent to a seasonally adjusted annual rate of 468,000 units, the highest level since July 2008.

December's sales were revised up to a 427,000-unit pace from the previously reported 414,000-unit rate. Economists polled by Reuters had forecast new home sales, which are measured when contracts are signed, falling to a 400,000-unit pace in January.

Sales in the Northeast soared 73.7 percent to a seven-month high, while the South recorded a 10.4 percent rise in transactions to a more than five-year high.

These regions along with the Midwest have experienced unusually cold weather that has been blamed for holding back economic activity. Sales tumbled 17.2 percent in the Midwest last month, while rising 11 percent in the West.

New homes are a small segment of the housing market, which lost momentum in the second half of last year following a run-up in mortgage rates and a shortage of properties for sale.

Higher borrowing costs and home prices mean that properties are less affordable for many, especially as income growth remains tepid.

Yields on 10-year and 30-year Treasuries rose after the release of the housing data, while U.S. stocks were trading broadly higher.

A separate report Wednesday showed applications for loans to purchase homes fell 4 percent last week from a week earlier, hitting their lowest level since 1995.

Sales of previously owned homes tumbled to a 1½ year low in January and housing starts recorded their biggest decline in nearly three years last month, according to data last week.

That raised concerns that the sector, which is key to the economy's recovery, was slowing down sharply.

New home sales rose 2.2 percent compared with January 2013. For all of 2013, sales were the highest since 2008.

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 a while as builders complain about a lack of lots, materials and skilled labor. With household formation falling sharply last year, housing activity could remain constrained for a while.

The median price of a new home last month rose 3.4 percent to $260,100 from January 2013. 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 months since June and was down from 5.2 months in December.

A supply of 6 months is normally considered a healthy balance between supply and demand.

9 Numbers That'll Tell You How the Economy's Really Doing
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New Home Sales Surge Nearly 10% in January
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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