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Examining the Rise in New Home Sales

new home sales

new home sales

Examining the Rise in New Home Sales

The Housing Market Continues to Recover Throughout 2016 at a Steady Pace

Reports show that new home sales rose by 2% in February 2016. Which areas of the country saw the most growth and what are the reasons for this increase in sales?

The inventory of new homes for sale was 240,000, which is a 5.6-month supply at the current sales pace. The median sale price of new homes sold in February 2016 was $301,400.

“The [February] bounce back in sales is in line with our builders’ reports that the housing market continues to recover at a slow but steady pace,” said NAHB Chairman Ed Brady.

Regionally, the West is a powerhouse for new home sales. According to the statistics released by HUD and the U.S. Census Bureau, new home sales rose 38.5% in the west, while sales dropped 4.1% in the south, 17.9% in the Midwest, and 24.2% in the northeast. That means that U.S. home buyers in the west accounted for all of February’s increase in sales of new houses, potentially signaling an uneven home sales market heading into the spring buying season. This surge reverses a stiff 32.7% decline in January that had cut into overall home sales in the west.

The rebound reflects a government report than can be extremely unpredictable on a monthly basis. Some analysts believe the HUD report clouds some views of where the construction and housing markets are heading at the start of the most prolific months for home sales.

Some say the U.S. housing market looks somewhat more even after strong growth in 2015. Sales in the opening months of 2016 are running slightly below last year’s pace but don’t reflect the anemic pace of new home construction and sales during the recession that began around 2009. In better news, builder confidence is holding steady despite a slight dip in sales expectations. Supply remains tight, so any burst in new home sales as evidenced by the dramatic increase in the west, is likely to strain the supply of homes available.

Price pressures are also increasing as the selection of new homes being sold for less than $200,000 has declined so far this year, while the share of new homes selling for more than $400,000 has risen. This could be reflective of markets like San Francisco and its nearby Peninsula, where housing pressure is driving prices up exponentially—and driving less affluent customers out of the market entirely. In one extreme case, Atherton’s 94027 zip code, the median home price is nearly $5 million.

The market seems to be rebounding but the housing crisis is far from over. New home sales remain well below the historic 52-year average of 655,200, a figure that includes the build-out of the suburbs and influx of buyers after World War II. Similar social changes could also affect the real estate market as America’s 65 million Baby Boomers begin their slow transition from full-time workers to semi-retirees, empty-nesters, snow birds and other more transitory lifestyles.

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