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New Home Sales Post Strongest Increase in 20 Years

New home sales jumped 15.6 percent in January--the strongest gain in 20 years--to a seasonally adjusted annual rate of 437,000, the ""Census Bureau and HUD"":http://www.census.gov/construction/nrs/pdf/newressales_201301.pdf reported Tuesday. Economists surveyed by Bloomberg expected the report to show a much smaller sales pace: 381,000.

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January's rate of sales was the highest since July 2008.

At the same time, the months' supply of new homes for sale dropped to its lowest level since March 2005.

The median price of a new home, according to the Census/HUD report, plunged $23,400 in the month to $226,400, up 2.1 percent from January 2012 and the lowest level in a year. The month-over-month price drop was the steepest percentage decline--9.4 percent--since the median price fell 10.4 percent in October 2010.

The average price of a new home fell $15,200, or 5.0 percent, in January, the largest drop in both dollar and percentage terms since January 2011.

The sharp increase in sales combined with steep price drops suggests builders are taking aggressive actions to pare inventories. Housing completions (as reported separately by Census and HUD) routinely exceed new home sales, and the gap between completions and sales has been widening.

Sales reports for November and December were revised, with November sales increasing from the initial report and December sales decreasing.

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The new home sales report--unlike the report on existing home sales--is based on contract signings and reflects economic conditions of the month of the report. Homebuyers had been restrained in December because of negotiations regarding the ""fiscal cliff"" which, according to some reports, might have restricted or eliminated the mortgage interest tax deduction. With that threat put aside, buyers returned (as reflected by the buyer traffic component of the National Association of Home Builders' ""Housing Market Index"":http://dsnews.comarticles/builder-confidence-flat-in-january-2013-01-16, which in January was at its highest level since April 2006).

The government report on new homes came on the heels of the ""report last week"":http://dsnews.comarticles/existign-home-sales-inch-up-prices-at-10-month-low-2013-02-21 from the National Association of Realtors (NAR) that existing home sale closings rose 0.4 percent in January. The NAR's Pending Home Sales Index, which parallels the new home sales report, will be released Wednesday.

The NAR sales report also showed a sharp drop in the months' supply of homes for sale.

The new home sales report covered the same month in which Census and HUD said builders completed 565,000 single-family homes, the highest level since June 2010, when the government attempted to boost sales with a homebuyer tax credit.

Homes with price tags under $300,000 represented 71 percent of January sales, up from 58 percent in December. Homes priced below $150,000 represented 16 percent of January sales compared with 10 percent in December. While the changing price points encourage home sales, they could discourage construction activity. Homes prices at $400,000 or more represented 15 percent of January sales, down from 20 percent in December.

Regionally, sales increased in all four Census regions: Sales were up 39,000 in the West to 125,000 (the highest level since April 2008); 8,000 in the Northeast to 37,000; 7,000 in the South to 225,000 (the highest level since September 2008); and 5,000 in the Midwest to 50,000.

_Hear Mark Lieberman every Friday on P.O.T.U.S. radio, Sirius-XM 124, at 6:40 a.m. and again at 9:40 a.m. EST._

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.
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