New-home sales strongest in more than 2 years

December 27, 2012: 10:59 AM ET
new home sales
New home sales in November rose to their highest level since 2010.
NEW YORK (CNNMoney)

New-home sales rose in November, recording their strongest pace in more than 2 years, another sign of improvement in the housing market.

The Census Bureau reported Thursday that sales of new homes rose to an annual rate of 377,000 in the month, up 4.4% from October, and up 15% from year-earlier levels. It was the highest rate of new-home sales since April 2010, when sales were inflated by a temporary $8,000 tax credit for home buyers.

The housing market is now showing numerous signs of improvement, including better existing home sales and home construction.

A combination of near record low mortgage rates, lower unemployment and a drop in foreclosures means there are more buyers interested in purchasing, and fewer available homes. That in turn has lifted home prices.

Related: Five signs to look for in housing

Those supply-and-demand dynamics are especially true in the new-home market.

There was only a 4.7 month supply of new homes on the market in November, the same tight inventory as has been the case in four of the previous six months. The last time there was a tighter supply of new homes available was in October 2005, near the height of the housing bubble.

The tight supply has lifted the median price of a new home sold in November to $246,200, up 14.9% from the comparable price a year earlier.

Anika Khan, senior economist with Wells Fargo Securities, said the report was stronger than expected, especially for what is traditionally a slow month for home sales. She said new-home sales and construction are becoming a more important driver of overall economic growth, which is even more important with the economy facing other headwinds such as a cutback on business investment and consumer worries about the fiscal cliff.

"New-home sales is a good story and it will continue to be a good story," she said.

New-home sales can be more important to the economy than sales of previously owned homes since they require purchase of other goods, such as appliances, and because of the construction jobs needed to build the homes.

Related: 2013 housing outlook

The continued rebound in prices likely will be a positive for both purchases and construction in the year ahead. Higher prices give current homeowners an incentive to sell their homes and procure the down payment they need for their next home purchase. Potential home buyers, who may have been on the sidelines because of uncertainty about home prices, might also be lured into the market.

Housing market shrugs off fiscal cliff

Home builders benefit from higher prices and increased demand. Leading home builders such as PulteGroup (PHM), Lennar (LEN), KB Home (KBH), D.R. Horton (DHI) and Toll Brothers (TOL) have all enjoyed at least a 50% rise in their stock price over the last 12 months, with PulteGroup's stock nearly tripling in value.


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