December new home sales improve to second-worst month ever

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A grain of salt may be needed to swallow the latest news of a "surge" in December new home sales. Image: CC quinn.anya/Flickr

New home sales exceeded analysts’ record-low expectations in December. The rise in December new home sales followed an alarming drop in U.S. home prices in November. A temporary spike in mortgage rates is suspected of driving the numbers, as home prices are expected to continue sliding.

Take new home sales with a grain of salt

New home sales registered a 17.5 percent month-to-month gain in December, according to the Commerce Department. New homes sold at a seasonally adjusted 329,000-unit annual rate in December. But these days even the most minor item of good news in the housing market must be taken with a grain of salt. The number of actual homes in the U.S. that sold in December was just 22,000. The Commerce Department also revised new home sales in November down to 20,000, the worst month ever. December 2010 wins the honor of second-worst month ever. Plus, December new home sales in 2010 were down 7.6 percent from December 2009. Overall new home sales in 2010 fell 14.4 percent to a record low 321,000-unit rate.

Why new home sales ‘surged’

New home sales may have received a bump from rising mortgage rates. The rate on 30-year fixed mortgages moved up more than half a point from the last week of November and into December to reach 5 percent. Potential home buyers sitting on the fence until home prices bottomed out may have interpreted the mortgage rate blip as a signal that it was time to get a home loan before the market turns the corner. However, the rate on 30-year mortgages has since returned below 5 percent. According to Freddie Mac, 30-year fixed mortgage rates averaged 4.99 percent for the week ending Jan. 21, down from 5.06 the week before. Another reason for the surge in new home sales may have been foreclosure moratoriums.

New home sales in 2011

A positive trend in new home sales for 2011 may depend on the behavior of home prices. Choosy shoppers in a buyer’s market continue to drive down home prices with cheap counter offers. The Standard & Poor’s/Case-Shiller home price index released earlier this week reported new lows in home prices for nine major U.S. cities. A wave of foreclosed homes is expected to hit the housing market in 2011, which will further drive down home prices. If it becomes evident to potential home buyers that home prices have bottomed out, many more are expected to visit a mortgage lender.




Los Angeles Times

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