New home sales surged forward in January and inventories dipped to their lowest in 8 years as housing demand continues to return. On an annual seasonally-adjusted basis, new homes sold at a 437,000 pace in January, up 15.6% from December and 28.9% from a year ago. The improvement was broad based in all four regions. The surge in sales and already low inventories reduced the month’s supply to 4.1 months, the lowest since March 2005.
Sales rebounded in the Northeast from a low in December because of the after-effects of Sandy and also advanced 45% in the West as California and Arizona markets in particular rebound from very low sales levels.
Inventory levels remain very low at 150,000 homes and only 43,000 that are completed and ready to be occupied. In a typical year, the current US competed supply would be a normal year’s sale volume in a single large metropolitan area.
The path ahead remains steady but still littered with potential diversions. A normal new home sales year is around 800,000 to 900,000 and NAHB expects 2013 to be about half that amount or 448,000. Credit remains tight for home buyers and some home builders; appraisals that rely too heavily on distressed sales come in below the contract price and sales fail; and builders are now facing rising prices for building materials, labor and lots.
The future does look better for housing as more indicators remain positive but the recovery will continue at a steady pace and won’t accelerate until 2014.