New Home Sales Rebound

The August report on new home sales jumped 7.9% to an annual level of 421,000. The increase was due to a very low report for July that may have been a result of consumer reaction to a spike in interest rates. The August pace of new home sales remains will below underlying historic demand of 800,000 per year but is 56% above the low in early 2011.

Three regions experienced increases while the West was down 14.6%. Inventories continue to rise as builders try to replenish their stock and anticipate continued improvement in consumer demand. At 175,000 new homes for sale, the inventory is the best since March 2011 and the 5 months supply is much closer to the sustainable levels of 5 ½ to 6 months.

The number of completed homes for sale rose slightly to 37,000 from 35,000 in July even as the median number of months from completion to sale fell to 3.0 months, the lowest in the 25 years of data in this series. Completed homes represent the greatest forward investment by builders who must borrower funds for every detail of the home and then pay interest on the full construction and land cost until sale. Reducing the time on the market to 3 months means builders are turning those homes very quickly, reducing their carrying costs and opening their ability to finance additional speculative homes.

Sales of completed homes rose to more than half of all sales during the collapse as builders tried to clear their inventory. More recently, completed homes represent 30% of all sales, which is more representative of the 1990s.

New home median prices rose 0.6%, the lowest annual increase in more than a year, which could just be a change in distribution of homes sold. Nine percent of homes sold in August were $500,000 or more, down from over 10% in the first and second quarter. Similarly, homes priced between $150,000 and $199,999 were 22% of sales in August compared to less than 20% in the first two quarters.
NAHB expects new homes sales to continue to improve at a very modest rate for the rest of 2013 and a more rapid 34% increase in 2014.

New Home Sales August



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