New-Home Sales Rise Sharply in December 2010


January 28, 2011

Sales of new single-family homes rose almost 18% in December 2010 to the highest rate since last spring, but builders in 2010 still suffered through their worst year since record-keeping began in 1963.

Sales jumped to an annual rate of 329,000 on a seasonally adjusted basis, with almost three-quarters taking place in the West, according to the Commerce Department. Economists polled by MarketWatch had predicted sales would rise to 299,000.

The market might have gotten a jolt from a tax credit in California that expired at year end, some economists say.

“The impressive increase in new home sales in December is mainly due to the rush to beat the deadline of a tax credit in California,” the firm Capital Economics said in a report. “Without that boost, new sales would have been broadly unchanged.”

Whatever the case, new home sales in 2010 ended up at the lowest level on record. The government estimates that sales fell 14% last year to 321,000 from 375,000 in 2009.

Sales plunged during the recent recession, and with millions of homeowners threatened with foreclosure, the housing market continues to struggle to recover.

Economists expect sales to accelerate in 2011 as the U.S. economy improves and buyers are attracted by low prices and ultra-low interest rates. Yet the rate of growth will depend largely on how fast the nation’s high 9.4% unemployment sinks.

The lack of work has hurt many homeowners, and the fear of losing a job has scared off prospective buyers, creating a surplus of available homes. Builders have reacted by slowing new construction.

In December, for example, the supply of homes at the current sales pace dropped from 8.4 months to 6.9 months, the lowest level since last spring. And at the end of 2010, about 190,000 homes were available for sale, the fewest on the market since 1968, according to the Commerce Department.

The median price of new homes, meanwhile, climbed to $241,500 in December from $215,500 in November. Fluctuating home prices can have a big impact on sales. If sellers think prices will continue to rise, for example, they might hold off on selling. Or if buyers think prices will fall, they might wait to purchase a new home.

Since data for tracking sales in new homes is volatile and subject to frequent change, economists tend to look at several months of data to gauge market trends. Over the three-month period of October to December, new-home sales averaged 296,000.That’s about one-third the rate of sales in normal economic times, however.