News Column

New-home Sales Up in March but Still Anemic

April 25, 2011

by Alan J. Heavens

After hitting bottom in February, the annual rate of new-home sales rose 11.1 percent in March but remained 21.9 percent below a year earlier.

The increase pushed the pace of sales -- the projected 12-month total if the same number of new homes were sold every 30 days -- to 300,000.

"The new-home market did improve in March, but given it rose from the lowest sales level on record, that is not saying a whole lot," said economist Joel L. Naroff, of Naroff Economic Advisers in Holland, Bucks County, Pa.

February's sales numbers -- 19,000 -- were the lowest since the Census Bureau began tracking them in 1963. March's 29,000 sales nationally were the highest since April 2010, when they reached 41,000.

The spike in sales last April might have been the result of the federal home buyers' tax credit, which expired at the end of that month.

Sales in May fell to 26,000 and continued hovering in the mid- to low-20,000 range every month thereafter.

"The market for new homes has been bouncing around at the bottom for nearly two years," said senior principal economist Chris G. Christopher Jr., of IHS Global Insight in Lexington, Mass.

"This report is relatively good news since it is indicating that there is some hope for new-home sales after last month's dismal reading," Christopher said.

Naroff cautioned, however, that "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."

The inventory of new homes for sale fell to 183,000 units in March, which is the second-lowest level on record. This represents a 7.3-month supply at the current sales pace.

National Association of Home Builders chief economist David Crowe called the inventory "thin."

"Builders continue to confront major challenges in obtaining financing to build new homes, and the shortage of new product makes it that much tougher for them to compete with existing homes on the market," Crowe said.

"Tighter lending conditions are making it more difficult for qualified buyers to obtain a mortgage," he said.

Noting the nearly 5 percent drop in median home prices year over year, Christopher said that builders "are feeling the squeeze from falling housing prices, increasing fuel and commodity prices, and lackluster demand."

Naroff said the price declines also may be the result of builders "downsizing" their product to meet the market.

Even if this isn't recovery, "you have to start somewhere," Naroff said.

Source: (c) Copyright 2011 The Philadelphia Inquirer

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