U.S. new home sales increased almost 8% in February, reaching the highest level in almost seven years — quite a relief from the softer housing data released earlier this month.
Data released by the U.S. Census Bureau and the Department of Housing and Urban Development on Mar 24 showed that sales of new single-family homes increased 7.8% to a seasonally adjusted annual rate of 539,000 units in February from a revised January number of 500,000. The number represents a 24.8% improvement from the year-ago month.
New homes inventory for sale was 210,000 units at the end of February. This is a 4.7-month supply at the current sales pace, down from January levels. The median sales price climbed 2.6% to $275,500 in February from a year ago. Analysts expect prices to go higher if the supply picture does not improve.
Shares of large homebuilders like PulteGroup Inc. PHM, Lennar Corp. LEN, D.R. Horton, Inc. DHI and Toll Brothers, Inc. TOL gained on Tuesday backed by the robust data.
Housing data released this month has been rather weak, creating some uncertainty around the housing recovery.
Housing starts tumbled to their lowest level in almost a year in February, declining 17%. Severe winter conditions, which seasonally slow down construction activity at the beginning of the year, were held responsible for the decline.
Sale of existing homes rose 1.2% in the month, which, though a rebound from January’s decline, were below market expectations constrained by “insufficient” supply and severe winter weather.
Homebuilders’ confidence for new single-family homes, as indicated by the National Association of Home Builders (NAHB)/Wells Fargo housing market index (HMI), dipped two points to 53 in March from the prior month. NAHB Chief Economist David Crowe blamed land and labor shortages, as well as tight underwriting standards for the decline.
We believe the softer consumer confidence in February, along with a measure of uncertainty in the economy, led to a lull in housing activity the first quarter of the year. The Consumer Confidence Index declined in February after a huge increase in January.
Analysts, in general, expect the sales pace to climb in March as the spring selling season sets in. Moreover, both consumer and home builder confidence are expected to improve as the U.S. economy becomes more and more stable.
The spring selling season generally brings in improving sales trends. Higher job numbers, a reassuring economy, moderating home price gains, affordable interest rates, rising rentals and a limited supply of inventory all point to an inevitable pickup in housing.
As demand stabilized, housing price gains slowed in 2014, which is expected to continue in 2015.
Moreover, analysts are predicting that with rising home prices, it will be difficult for the millennials to pay the down payment which has also been rising. So instead of buying, they will rent, in turn increasing rents.
Even if mortgage rates rise in the latter half of the year, as is widely anticipated, these should remain reasonable.
To add to the positives, plans from the White House to cut premiums on mortgage insurance should encourage first-time homebuyers.
With the oil prices continuing their downward journey and an economy largely on the mend, the desire to own new homes will get a shot in the arm.
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