March New-Home Sales Leaped 27% to a 411,000 Annual Pace

New Home sales in March rose 27%
New Home sales in March rose 27%

The U.S. housing market got a big lift in March, as new-home sales surged 27% to a 411,000-unit annualized pace -- the largest, one-month increase since 1963, the U.S. Commerce Department announced Friday.

However, investors and homeowners should keep in mind that the March gain came against last month's 47-year-low in new-home sales, hence the outsize monthly percentage increase.

Economists surveyed by Bloomberg News had expected March new-homes sales to rise to a 330,000 annual rate, from a revised 324,000 in February (which was previously reported as 308,000). In addition, January's and December's new-home sale totals also were revised higher, to 338,000 and 353,000, respectively.

Further, March showed the first increase in new-home sales in five months. Economists and realtors alike hope this is start of a new, positive trend in sales, given initial support, at least, by Congress' expanded homebuyer tax credit. Investors and potential buyers should keep in mind that Congress extended and expanded the home purchase tax credit to $8,000 for first-time buyers and $6,500 for repeat buyers until April 30.

Strength Across the Country


New home sales chart
New home sales chart

n another encouraging development, inventories plunged to a 6.7-month supply in March, from 9.2-months in February. Prior to March, inventories had risen for three consecutive months. Also in March, the median new-home sale price rose 4.3% compared to a year ago, to $214,000.

New-home sales in March rose across the country: They skyrocketed 43.5% in the South and 35.7% in the Northeast, and rose 5.7% in the West and 4.3% in the Midwest.

Home sales data are important to investors becaus increases are strongly correlated with greater demand and an economic expansion. When new homes are sold, buyers tend to acquire durable goods/big-ticket items, such as furniture, appliances and home supplies -- an uptrend in each of which is good news for the economy.

Can It Keep Going?

However, government statisticians also caution that the new-home sales data contain a margin of error and are subject to revisions. Further, it can take up to six months for a meaningful trend to form.

Still, the March report is a hopeful sign for homebuilders and the housing sector. Even after factoring in the low-base comparison, the March data, when combined with March's 6.8% rise in existing home sales to a 5.25 million-unit annual pace, suggest that Congress' extended tax credit had the desired effect. Now, if interest rates remain relatively low -- and job growth resumes -- spring 2010 could mark the period when the housing sector becomes a positive force in U.S. commerce again.