Sales of New Homes Dip, Prices Surge by Most Since 2006 in Two Reports on Housing

We received two reports on housing Tuesday morning, one on new home sales from the U.S. Census Bureau, and the other on prices of existing homes for sale, from S&P/Case Shiller. Sales of new single-family houses in February 2013 were at a seasonally adjusted annual rate of 411,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.6 percent below the revised January rate of 431,000, but is 12.3 percent above the February 2012 estimate of 366,000. Sales increased in the Midwest; sales fell in the Northeast, South and West. Note, however, that partly because of the sample size, there is a large margin of error around these terms. In fact, new home sales nationwide could have been 20 percent above or below the figure cited. And the Census Bureau states that it can take three months before a trend in new home sales can be established. Thus, this decline in sales should be taken with a grain of salt. The median sales price of new houses sold in February 2013 was $246,800; the average sales price was $313,700. About a third of homes sold were in the price range of $200,000 to $299,999, and about a fifth of homes were sold between $150,000 and $199,999. While these trends have not seen a big change in the past year and a half, we do see somewhat smaller proportion of homes sold below $150,000. This reflects both higher selling prices and competition from foreclosures of existing homes. Inventory continued to be tight. The seasonally adjusted estimate of new houses for sale at the end of February was 152,000. This represents a supply of 4.4 months at the current sales rate. In a typical market, inventory is around five to six months, and a tight inventory can mean higher prices. Indeed, in a separate report this morning, we see that prices of already-constructed homes rose by the most since 2006. Data through January 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, showed average home prices increased 7.3 percent for the 10-City Composite and 8.1 percent for the 20-City Composite in the 12 months ending in January 2013. All 20 cities posted year-over-year gains with Phoenix leading the way with a gain of 23.2 percent. That is partly due to investors buying foreclosed properties en mass to either rent out or resell. Nineteen of the 20 cities showed acceleration in year-over-year returns. Despite posting a positive double-digit annual return, Detroit was the only city to show a deceleration. After 28 months of negative annual returns, New York came into positive territory in January. “The two headline composites posted their highest year-over-year increases since summer 2006,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “This marks the highest increase since the housing bubble burst.” He continued, “Economic data continues to support the housing recovery. Single-family home building permits and housing starts posted double-digit year-over-year increases in February 2013. Despite a slight uptick in foreclosure filings, numbers are still down 25 percent year-over-year. Steady employment and low borrowing rates pushed inventories down to their lowest post-recession levels.” Thus, housing continues to recover, and the increase in home prices should help consumer confidence, not to mention it can reduce the ranks of underwater homeowners. As people regain home equity, they may spend more as they feel more confident in their ability to move without ponying up more capital. And they may be more able to relocate to take a job in a different city, which may help increase employment as workers can find more optimal fits with potential employers.