New Home Sales Fall 7 Percent in December, Still Best Year Since 2008

Andrew Klips  |

Sales of newly built homes declined more than expected in December from November, signaling the housing market slowed amid bitter weather to end the year, but the third straight year of increases and best in five years shows the industry staying on track to recover.

The Commerce Department reported Monday that new home sales, a count of the number of signed contracts, declined 7 percent to a seasonally adjusted annual rate of 414,000 from a revised 445,000-unit pace a month earlier (revised downward from an original estimate of 464,000). Economists were predicting the report to show December sales at a 457,000-unit rate.

It was the second consecutive month of declines after a 14.9-percent surge in October. Rising interest rates and unseasonably cold and snowy weather played a significant role in the declining rate. It was the coldest December since 2009 and the eighth-largest amount of snowfall on record during the month. Earlier this month, the Commerce Department said that housing starts slid by almost 10 percent in December.

Conversely, the National Association of Realtors reported last week that sales of existing homes rose in December, marking their first climb in five months.

Sales in the Northeast, an area getting hit particularly hard with inclement weather, sunk by 36.4 percent last month. Sales for the month dropped in all regions, except the Midwest, where they improved by 17.6 percent from November.

This is likely just a lull in the overall picture of a strengthening residential housing market. Buyers are still getting used to banks lifting lending rates in response to the actions of the U.S. Federal Reserve scaling back on its monetary stimulus through monthly purchases of Treasuries and mortgage-backed securities by $10 billion per month starting in January.

Compared to December 2012, new homes sales were up by 4.5 percent. For all of 2013, an estimated 428,000 new homes were sold.  That’s up 16.4 percent from 2012 and the best year since 2008. 2011 was the worst year for new home sales on record, with Americans buying only 307,000 units.

Economists generally consider a 700,000-unit per year clip to be a sign of a healthy economy. The nation hasn’t crossed that rate since 2007, when almost 800,000 new homes were purchased.

The Census Bureau also reported that the nation has 171,000 new homes in its inventory, equating to enough for five months of supply based upon the sales pace for December. That’s up from 4.7 months worth in November and marks the highest level since September.

The median sales price for a new house in December was $270,200. The average sales price was $311,400.

The markets are trending lower again in Monday action, with the Dow on pace for its fifth straight loss if it can’t right the ship in afternoon trading. The Dow is off by 30 points, the S&P 500 is lower by 8 points and the tech-rich Nasdaq is taking the biggest drubbing, carving off 46 points.

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