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Analysts Debate Spike in New-Home Sales

Published on Monday - December 09, 2013

Just as the housing sector recovery appeared in position for a lull, the U.S. Census Bureau reported a drastic increase in the sales of new-home contracts. The transition between September and October witnessed a surprising 25.4 percent surge in new-home sales, bringing the figures to a seasonally adjusted annual rate of 444,000. For comparison, those numbers are very similar to last spring when the market demonstrated a propensity for increased activity. Of particular concern, however, is the small sample size and volatile nature of the Census Bureau’s findings. Analysts familiar with the market fear this recent activity may be too good to be true.

The jump in new-home sales, at the very least, appears to be convoluted. According to The Wall Street Journal, “Census Bureau statistics appear to contradict the findings of monthly surveys by housing market analysis firms.” One particular survey, conducted by Zelman & Associates, acknowledged a nine percent drop in new-home sales for the month of October. Furthermore, David Crowe, a chief economist for the National Association of Home Builders, concurs with the findings of the Zelman survey.

Other opinions suggest that October sales showed improvement, but expectations should be tempered in comparison to the Census Bureau survey. While public builders acknowledge sales were up slightly, they are not enough to get excited about, as the previous months were particularly slow.

Everyone seems to have his or her own opinion as to how well the new-home market is doing.

On Wednesday, the Census Bureau stated that they lowered previous sales estimates for the summer months. June, July and August each saw their numbers drop by 1%, 4.4% and 10%; respectively. Similarly, the October estimate is expected to receive a revision.

While analysts want to believe the trend in new-home sales is legitimate, they are inclined to temper their expectations. They do not have a hard time believing in an increase. Rather, they just don’t think the increase was a significant as 25 percent. “The market is stabilizing, but maybe it hasn’t come back to the degree that today’s data would suggest,” said Mark Zandi, chief economist for Moody’s Analytics.

Tyler Morrison Home Corp., at the very least, confirms that new-home sales increased for some. The Scottsdale-based builder managed to sale 1,163 homes in five separate states during the third quarter. Contributing to their numbers were increased sales in October from the previous month. “September was the slowest, and October started to pick up” as the fourth quarter started, Taylor Morrison spokeswoman Erin Willis said.

Despite uncertainty as to the rate in which new-homes sales increased, the general consensus is that they did. Regardless of how much these sales jumped, economists and builders see reason for optimism. This is due, largely in part, to the shutdown of the government that occurred in the controversial time period. For two weeks, the federal government was closed, essentially stalling the entire housing sector. The fact that new-home sales increased amidst such turmoil is encouraging enough. The slight reduction in interest rates likely spurred a few buyers off the fence in October and November.

“It’s more active now,” said Brendan Wright, a real estate agent at Atlanta Fine Homes Sotheby’s International. “There was so much activity in the spring and summer that the people who missed the boat then are circling back now as opposed to waiting for next spring.”

Despite uncertainty surrounding recent new-home sales, those familiar with the market expect the rate of signed contracts to come close to 800,000 next year.

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