Home Prices Up, New-Home Sales Surging

The Mortgage Corner

Sales of newly built, single-family homes rose 7.6 percent to a seasonally adjusted annual rate of 369,000 units in May, according to newly released data from HUD and the U.S. Census Bureau. Why are new-home sales important? Because they indicate lower housing inventories, as fewer distressed homes enter the market. Consequently home prices are beginning to rise with the Case-Shiller Home Price Index the latest to show improving housing values.

The S&P/Case-Shiller 20-city composite existing-home index for same-home sales gained 1.3 percent with 19 out of 20 cities registering gains, to take the year-on-year drop from 2.6 percent to 1.9 percent.

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Graph: Calculated Risk

Of the 20 cities measured, only Detroit took a step backward, with a 3.6 percent reversal. Even Atlanta, where prices were 17 percent below year-ago levels, enjoyed a 2.3 percent monthly increase. Where are prices increasing the fastest? In Florida, Arizona, and California, the heart of the housing bubble.

“It’s been a long time since we enjoyed such broad-based gains,” said David Blitzer, chairman of the index committee at S&P. “While one month does not make a trend, particularly during seasonally strong buying months, the combination of rising positive monthly index levels and improving annual returns is a good sign.”

New-home sales are 19.8 percent higher compared to one year ago. Still, the sale of new homes remains far below its pre-recession peak and reflects an industry trying to dig out from its worst slump in modern times, mainly the huge inventory of unsold existing homes. But the good news is that existing-home inventories are declining to more historical levels, which boosts both prices and new-home construction, as we said.

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Graph: Calculated Risk

“May’s sales report is a welcome sign that the market has returned to a more solid growth path following lackluster reports in March and April, and is in keeping with our expectations for continued, steady improvement through the end of this year,” said NAHB Chief Economist David Crowe. “While the current sales rate remains low by historical standards and continues to be constrained by challenges related to credit availability for builders and faulty appraisals, the ongoing decline in the month’s supply of new homes will necessitate additional construction in certain markets going forward.”

Regionally, new-home sales were mixed in May. While the Northeast and South posted solid gains of 36.7 percent and 12.7 percent, respectively, the Midwest and West showed respective declines of 10.6 percent and 3.5 percent.

Harlan Green © 2012

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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