New home sales still lag housing rebound
(MoneyWatch) What's going on with new home sales? It's difficult to find the silver lining in the most recent numbers released today by the Commerce Department.
Sales of new U.S. homes fell 7.3 percent in December to a seasonally-adjusted annual rate of 369,000. Such paltry numbers recall the darker days of the Great Recession, when 302,000 new homes were sold in 2011, the worst year since the government began keeping records in 1963.
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Never mind that in 2012 some 367,000 new homes were sold. Nor is it particularly relevant that the pace of new home sales in 2012 was the fastest in three years. The unhappy fact remains that in a normal year, developers and builders would sell between 700,000 and 800,000 homes (At the height of the housing bubble, more than a million new homes were sold per year -- a different sign of dysfunction).
If we're in a housing recovery, in other words, it may not include newly built homes, with sales at barely 50 percent of what you'd see in a normal year. That continues to restrain construction industry growth, along with keeping a lid on the kind of high-paying building jobs that allow families to pay their bills and even squirrel away some savings.
There are some signs that the clouds are beginning to part. The inventory of new homes for sale stands at about 151,000, according to research firm Capital Economics. That's low historically, and builders are starting to add to inventory. With more new houses for sale and mortgage interest rates still at record lows, perhaps home buyers will be tempted to take a risk and sign a contract.
Real estate developers continue to face sales pressure from the vast quantity of distressed inventory making its way through some markets. Foreclosure and short sale prices make it difficult to build profitably in some areas. But here, too, the low-hanging fruit is by and large gone, and prices are rising. That's good news for builders, too.
Another key piece of the puzzle is financing. Mortgage lenders want to lend, first and foremost, to people who don't need their money. That much is a given. But a lot of lenders have been burned on new construction financing, and it's much tougher to get a mortgage these days if you don't have enough cash to buy the house outright. Giving more buyers a wider range of options for new construction financing will also help spur housing construction.
Yet the truth remains that the housing sector remains subdued, and downright depressed by some measures. December's report, no matter how you slice it, doesn't contain the kind of good news most builders and industry observers were predicting. We'll have to hope that the industry regains momentum in the first quarter of 2013 in order to provide a necessary jolt to the economy.
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