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Yes, new-home sales rose (or surged, or skyrocketed, or whatever) 16.2% (+/- 13%) in April to a pace of 981,000 from 844,000 in March, the U.S. Census Bureau reported this morning.
No, I didn’t expect it! But I don’t imagine I’m the only one who’s surprised considering the recent flurry of bad news from builders and realtors. Analysts expected sales at an 860,000 annual pace, with forecasts ranging from 800,000 to 940,000.
But it was the biggest increase in 14 years (yes, 14 years!) Maybe that’s not much of an accomplishment considering that new-home sales rose just 2.6% in March after plunging (yes, that’s the word) to the lowest level in nearly 7 years in February. New home sales were also still 11% lower than they were in April 2006 (but we’re just sick to death of all those negative headlines, aren’t we?)
Ironically, shares of Toll Brothers were trading up today after the luxury-home builder’s poor earnings announcement, because of the positive home sales report. In fact, all three major stock indexes rallied on the news.
“This suggests that the worst case scenarios for the housing correction will never materialize, and the housing market may in fact rebound faster than the consensus expects,” said Wells Fargo senior economist Scott Anderson.
But stock market gains evaporated after investors read a little deeper into today’s report. Builders are struggling, lending standards are stricter, so why then, did sales of new single-family houses, which account for about 15% of total home sales, increase?
Here’s the reason: The median price of a new home fell 11% last month to $229,100 from $257,000 a year earlier, the biggest decline since 1970.
“The big price decline implies that builders are slashing prices to move the huge overhang of unsold inventory,” said Barry Ritholtz of Ritholtz Research and Analytics.
Indeed, the inventory of unsold new homes fell to 6.5 months (seasonally adjusted) in April from 8.1 in March. Ritholtz has uncovered another interesting trend: whenever new-home sales have had a double-digit gain in the past 15 years, they nearly always decreased in the following month.
“In other words, stick with the two or three month average,” he warns.
Tomorrow, keep your eyes peeled for the National Association of Realtors’ April existing-home sales data.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.