New Home Sales Up: A New Trend or Just More Noise?

These days, the construction market will take any good news it can get. So it is likely at least somewhat pleased to hear that new home sales increased modestly in April, by 7.3%. This marks the second month straight that sales rose. The month's annualized, seasonally adjusted rate of 323,000 new home sales was the highest so far this year, though slightly lower than December's tally. Is an upward trend forming?

First, here's the chart since 2000, based on Census Bureau data:

new home sales 2011-04.png

You can see that even after the additional sales in March and April the numbers remain very, very low on a historical basis. Really, sales over the past two months remain in-line with the levels we've been seeing. New home sales would have to break the threshold of around 350,000 before we could say we're seeing something new. Instead of citing a new trend, we could just as easily hypothesize that the market continues to move sideways, remaining in the range of 275,000 to 325,000 new home sales.

This range became normal after the expiration of the home buyer credit last spring. At this point, nearly one year after its expiration, the market for new homes hasn't really improved.

Today's report does provide one kernel of hope that this a real upward trend is forming. New home sales increased across all four regions of the U.S. Although we saw the same phenomenon in December, this time around there's no one region mostly responsible for the rise in sales. Even the smallest regional increase, in the south, was 4.3% better than in March.

Unfortunately, we'll have to wait and see a few more months of data before we can make any firm conclusions about the market for new homes. Although starts and permits imply that it will remain weak, the usual summer upswing could magnify new sales this year if a higher than usual number of prospective new home buyers have been sitting out of the market until the weather changed. Of course, it helps that banks aren't flooding the housing market with defaulted homes for those prospective buyers to consider, which could provide bargains that push them away from a new home towards an existing one.