Thursday, April 17, 2014
Inquirer Daily News

New home sales, higher prices bode well

Economics in a nutshell: The slow but steady rise in new home sales, coupled with increasing prices, bodes well for future construction activity.

New home sales, higher prices bode well

Mike and Ann Jeweson, both in the twenties, are taking advantage of low interest rates to make the four-bedroom home under construction behind them their first home. (Kyndell Harkness / Minneapolis Star Tribune / MCT)
Mike and Ann Jeweson, both in the twenties, are taking advantage of low interest rates to make the four-bedroom home under construction behind them their first home. (Kyndell Harkness / Minneapolis Star Tribune / MCT)

INDICATOR: March New Home Sales/February Home Prices

KEY DATA: Sales: up 1.5%; Year-over-Year: up 18.5%/FHFA Prices: up 0.7%; Year-over-Year: 7.1%

IN A NUTSHELL: "The slow but steady rise in new home sales, coupled with increasing prices, bodes well for future construction activity."

WHAT IT MEANS: New Home sales rose in March, which was good news given that activity had plummeted in February. The pattern of housing starts and sales during the winter has to be taken with a foot of snow as weather does make a big difference. Compared to last year, demand has jumped quite nicely. Looking across the nation, there were huge differences. Roughly twenty percent gains were posted in the Northeast and South while the Midwest and West experienced double-digit declines. More homes are coming on to the market but the inventory still remains fairly low. That may be keeping sales from ramping up more quickly. There was a pretty good-sized change in the price distribution of homes sold, with a lot more demand in the under $300,000 range. That led to a fairly modest 3% increase in median prices since March 2012. Nevertheless, housing prices are on the rise. The Federal Housing Finance Administration's report on houses whose mortgages are owned and guaranteed by Fannie and Freddie indicated that in prices jumped solidly in February, continuing a year-long trend. The FHFA index is back to its October 2004 level and has recovered nearly ten percent from its bottom in early 2011.

MARKETS AND FED POLICY IMPLICATIONS: The housing recovery keeps on keeping on but don't expect further surges in activity. Steady as she goes means that progress will be made and housing will add to growth but the double-digit increases are not likely for a while. We still need to see more people with positive equity that is sufficient to allow them to move. Additional easing in the credit standards would also be nice. Still, this was a good report that supports the view that at least one part of the economy is not being battered too greatly by Washington's attacks on growth. Investors should like these numbers as well as the modest easing in March of the mass layoffs numbers that was reported today by the Bureau of Labor Statistics. All-in-all, this was a day of data that pointed to further growth and that is all we need to make lots of people happy, even if that growth rate may not be nearly what it should be.

About this blog
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm in Bucks County. He advises companies across the country on the risks and opportunities that economic developments may have on the organization’s operating environment. An accomplished public speaker, Joel’s humor and unique ability to make economics understandable have brought him a wide following. Reach Joel at joel@naroffeconomics.com .

Joel Naroff
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