Wednesday, December 27, 2006

New Home Sales Up 3.4%*

From Bloomberg:

Sales of new homes in the U.S. rose more than forecast last month as lower mortgage rates and more incentives helped builders reduce inventory.

The 3.4 percent increase to an annual pace of 1.047 million in November followed a 1.013 million rate the prior month that was faster than previously reported, the Commerce Department said today in Washington. The supply of unsold homes at the current sales pace fell to the lowest since May.

The figures add to evidence that the slowdown in construction may take less of toll on the economy early next year than it did last quarter. Even with the decline last month, the number of unsold homes remains near a record high, making it less likely homebuilding will strengthen outright, limiting economic growth, economists said.

A couple of points in no order of importance.

1.) The Census Bureau says the margin of error for this number is plus or minus 12.9%. That's a margin of guessing, not error.

2.) Number 1 being said, consider that October was revised higher:

Sales of new homes rose 3.5% in November to a seasonally adjusted annual rate of 1.047 million, the Commerce Department reported Wednesday. Sales are now down 15.3% in the past year. October's sales pace was revised to 1.013 million from an earlier-estimated 1.004 million. The median sales price of a new home rose to $251,700 from $243,800. Economists surveyed by MarketWatch were expecting sales to rise to a seasonally adjusted annual rate of 1.02 million from the previous 1.00 million

That's impressive. And frankly, I have to admit to being taken back by the upward revision.

Low interest rates are the primary reason for the increase:

Slower-than-expected growth in recent months has pushed Treasury yields lower, holding the rate on 30-year fixed mortgages to under 6.2 percent for the last month, compared with a high for the year of 6.8 percent reached in July. The Mortgage Bankers' Association's index of purchase applications are up almost 4 percent from a three-year low reached at the end of October.

3.) The median price increased. However, there is no mention of the effect of builder incentives on prices. I would like to see more information on the depth and breadth of builder incentives.

If this number holds, this is good news for the economy.