Economists Analyze Positive Reports on New Home Sales

New home sales rose 3.3 percent month-over-month in April to a seasonally adjusted annual rate of 343,000, the ""Commerce Department"":http://www.commerce.gov/ and ""HUD"":portal.hud.gov/hudportal/HUD reported Wednesday. On a yearly basis, new home sales rose 9.9 percent. And, the good news did not end there. The months’ supply of inventory fell to 5.1, and while sales were down in the South, they were up in Northeast, Midwest, and West.

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This report was followed by the ""National Association of Realtor’s"":http://www.realtor.org/ existing home sales report released Tuesday, which showed the sale of existing homes rose 3.4 percent on a monthly basis and 10 percent year-over-year.

In comparison to the sale of existing homes, Paul Diggle, property economist with ""Capital Economics"":http://www.capitaleconomics.com/, said new home sales will still continue to lag behind the existing home sales market.

“New homes are still having to compete with discounted foreclosures and short sales,” Diggle wrote. “Moreover, we have started to hear anecdotal reports that homebuilders are running low on high-grade lots for development, which opens the possibility that starts, and thus sales, may pause temporarily if builders need to replenish land supply.”

Even though the new home sales sector is not expected to improve as quickly, there were still noteworthy signs economists pointed out for the market.

In an analysis, Patrick Newport and Michele Valverde, economists with IHS Global Insight, commented, “Not only were sales a bit higher than expected, the numbers for the prior three months were revised up. Sales for 2010 and 2011 were also revised, but only marginally. This market is unquestionably improving. Activity, though, is still less than half of normal.”

Capital Economics also noted that new homes are also being sold earlier in the construction process, with 58 percent of new homes sold in the previous three months un-started or still under construction.

“The rising share of new homes selling earlier in the construction process strikes us as
further evidence of the improvement in buyer confidence. After all, you’re unlikely to
buy a home if you expect it to be worth significantly less by the time it has been built,” Diggle wrote.

With the slight drop in inventory from 5.2 months in March to 5.1 in April, Newport and Valverde said, “Inventory may have hit or is nearing a bottom. This is good news, since re-stocking inventory to meet rising demand will give housing starts a small boost in the coming months.”

As for the future, IHS economists said they project sales to rise to 361,000 in 2012 from 307,000 in 2011, and they do not expect to see sales climb above 800,000 until 2015.