New home sales rose in March, with the number of properties on the market at its lowest since the 1960s. Additional gains will be stymied by competition from the market’s glut of previously owned houses. Single-family home sales rose 11.1 percent to a seasonally adjusted 300,000 unit annual rate, according to the Department of Commerce, during a month when economists had expected a 280,000-unit pace. Even with the March uptick, new home sales are just bouncing along the bottom. Despite the good news, the number of houses sold still is 21.88 percent less than the level achieved one year ago. The news was released by the U.S. Census in its monthly New Residential Home Sales Report for March.
“Investors continue to drive the market and were about 22 percent of the purchasers in March, up from 19 percent a year ago,” said economist Joel Naroff, of Naroff Economic Advisors, in Holland, PA. Investors typically look for foreclosures or short sales. “They love those cheap distressed homes, which now make up 40 percent of the market,” Naroff said. “Given the tight lending standards cash buyers are more than welcome. To get a Fannie or Freddie loan, which are the only games in town, a borrower has to have a credit score of about 760. Before anyone gets excited and thinks housing is on the rebound, understand that we need to more than double the March sales pace to reach decent sales levels,” Naroff said. “Prices remain soft and are down by about five percent over the year.”
According to Dirk van Dijk of the Wall Street Pit, “The March level was substantially better than the expected rate of 280,000. The 11 lowest months on record (back to 1963) for new home sales have all been in the last 11 months. We are down sharply from a year ago, and it is not like a year ago was a great time in the homebuilding industry either. Relative to the peak of the housing bubble (July ’05, 1.389 million) new home sales are down 78.4 percent. Inventories of new homes were down 1.1 percent on the month and are down 19.7 percent from a year ago. Supply is at 7.3 months, down from 8.0 months in February, but up from 7.1 months a year ago. While that is well off the peak of 12.0 months, it is still above normal. A healthy market has about a six month supply of new houses and during the bubble, four months was the norm.”
The median price of new houses sold in March was $213,800, according to the Census Bureau. “It’s a decent start to the spring selling season, but we’re coming off all-time lows here, so we’re not going to get too excited,” said Brett Ryan, economist with Deutsche Bank Securities. “The overhang of foreclosures drags on new home sales. Builders are waiting for a clearing process to take place.”
The housing market was either “little changed from low levels” or weaker across the country, the Federal Reserve said in its most recent Beige Book report. The absence of a continued housing rebound is one of the reasons why policymakers will complete their $600 billion asset purchase plan and keep borrowing costs at nearly zero to encourage growth.
Last year was the fifth consecutive year of declining new-home sales. According to economists, it could take years before sales return to a healthy pace. Slow new-home sales add up to fewer jobs in construction, which normally powers economic recoveries following recessions. Each new home creates an average of three jobs for a year and adds $90,000 to the local tax base, according to the National Association of Home Builders.