What Happened in December’s New-Home Sales Jump?

Since sluggish numbers have become the norm in the recovering real estate market, many were surprised by December’s 17.5 percent jump in new home sales. However, it is …

Since sluggish numbers have become the norm in the recovering real estate market, many were surprised by December’s 17.5 percent jump in new home sales. However, it is important to put these figures in perspective with sales over the last few months of the bad economy. Time will tell whether December’s sales pace can improve or if the numbers fall off. See the following article from The Street for more on this.

No, I’m not about to throw a huge bucket of water on a really nice monthly stat that is infusing a modicum of hope in the housing market. I just want to put it all in perspective.

New home sales surged 17.5 percent in December, month-to-month, according to the Commerce Department, and that brought inventories way down to a 6.9 month supply (the total number of new homes for sale also fell to the lowest level since 1968). Prices of new construction actually bumped up significantly as well, up 8.5 percent year over year.

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It’s important to remember that this particular data series is based on contracts signed in December and not closings, as the Existing Home Sales survey from the National Association of Realtors is. So what happened in December?

From the last week in November, into December, the rate on the 30-year fixed mortgage surged more than half a percentage point, briefly touching 5 percent. That clearly had the effect of pushing some fence-sitters to the buy side, worried that rates might go even higher, and they would be priced out of the market. Rates have since flattened below 5 percent with not much going on. The urgency is gone.

To put all this in perspective, while 17.5 percent seems like a big number, the actual number of homes that sold in December was 22,000, with November being revised down to 20,000. "So December is the second worst month in recorded history behind November," notes JT Smith of Aristar Funding. He also notes that 23 percent of the sales were of vacant lots.

The strange number in the report is a huge 72 percent jump in sales month to month out West, "strangely where most of the excess existing home inventory is," says Miller Tabak’s Peter Boockvar. I’m wondering if the surge out West isn’t due to the fact that foreclosure sales were halted, so buyers turned to new construction.

"Net-net, housing continues to bounce along the bottom, as we’re well aware that a bubble of the extend we had takes many years to work through," adds Boockvar.

It will be telling to see if this sales pace can hold on and improve, as banks ramp up foreclosures and start putting them back on the market.

This article has been republished from The Street. You can also view this article at The Street, a site covering financial news, commentary, analysis, ratings, business and investment content.

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