February new homes sales rise 4.7 percent on bargain hunting

Make it two-for-two in the U.S. housing sector. New home sales unexpectedly rose 4.7 percent in February to a 337,000 seasonally-adjusted, annual pace, the U.S. Commerce Department announced Wednesday, as buyers took advantage of a double-digit yearly decline in prices (pdf). It was the strongest new home sales pace in 10 months.

This is another mild, positive data point for the U.S. economy. It's the second consecutive positive items for the housing sector -- a rarity, recently – and one of at least four positive data points for the U.S. economy this week, something that hasn't occurred in months. Although investors should keep in mind that the new home sales statistic is subject to large revisions, it appears at least a segment of the potential home buyer market is beginning to search for bargains.

The February new home sales upside follows the 5.1 percent rise in February existing home sales to a seasonally-adjusted, annual rate of 4.71 million units. Economists surveyed by Bloomberg News had expected February new home sales to register a 315,000 annualized rate. New home sales registered a revised 322,000 annual pace in January, up from the previously-announced 309,000 pace.

New home prices plunge

Meanwhile, the median sales price for new houses sold in February plunged 18.1 percent to $200,900 from $245,300 a year ago; the average sales price plummeted 16.7 percent to $251,000 from $301,200 a year ago, the Commerce Department announced. Inventories totaled 330,000 or a 12.2-month supply at the current sales pace.

David Resler, chief economist for Nomura Securities International in New York, senses better days are ahead for housing. "The housing slump may be nearing a bottom,"' Resler told Bloomberg News Wednesday. "However, we would expect sales and other metrics of housing activity to recover only gradually.''

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 a vacuum: when new homes are sold, homeowners tend to buy durable goods and 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 U.S. stock markets.

Housing Sector Analysis: It's not a realtor's open house dream, but it looks like housing traffic is picking up. It appears potential home buyers are beginning to snap-up bargains -- and keep in mind that this activity is occurring amid still-constrained credit markets. Unless your tri-merged, FICO credit score is 780 or above and you're putting 20 percent down with documented two-year income, you most likely won't get the lowest mortgage interest rate. That suggests increased home sales demand in the months ahead, other factors being equal, as the Obama administration's efforts to loose credit markets continues to take effect.

Still, investors need to keep in mind that the 337,000 new home sales pace is well below February 2008's roughly 600,000 annual pace: it will still take quarters for inventory levels to get their more typical three to five month supply.
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