Market up 7.8% for new builds

This Jan. 8, 2015 photo shows a sign advertising lots for new homes for sale in Richmond, Va. The Commerce Department releases new home sales for February on Tuesday, March 24, 2015.
This Jan. 8, 2015 photo shows a sign advertising lots for new homes for sale in Richmond, Va. The Commerce Department releases new home sales for February on Tuesday, March 24, 2015.

WASHINGTON -- Sales of new U.S. homes in February climbed to their fastest pace in seven years, as an otherwise dormant housing market showed fresh signs of life.

The Commerce Department said Tuesday that new-home sales rose 7.8 percent last month to a seasonally adjusted annual rate of 539,000, the strongest performance since February 2008. January sales were revised up nearly 4 percent to a rate of 500,000. The figures are based on a small sampling of builders, which makes them subject to revisions.

"It looks like the spring selling season is off to a good start," said Stan Shipley, an economist at Evercore ISI in New York. "With low mortgage rates, if you look at it, it's very affordable for most potential homeowners," even as credit remains tight, he said.

Other parts of the housing market have struggled because 2015 got off to a frigid start, despite historically low mortgage rates and a sharp, year-long upswing in hiring. The shift upward in purchases of newly built homes may suggest that job growth is spilling over to other parts of the economy.

"The housing market remains in recovery mode, and that activity for the rest of the year is likely to improve at a modest, albeit choppy, pace," said Blerina Uruci, an analyst at Barclays bank.

The strong increase came from the South and, surprisingly, the Northeast, which was hammered by snowstorms last month. Buying fell in the Midwest and West. The median sales price rose 2.6 percent since February 2014 to $275,500.

Winter weather has led builders to pull back on the pace of single-family housing starts and slowed work at construction sites. And sales of previously owned homes in the first two months of 2015 were running behind the already weak pace set last year, according to the National Association of Realtors.

Housing starts fell to a seasonally adjusted 17 percent last month from January, with the biggest drops coming in the snowbound Northeast and Midwest, the Commerce Department reported last week.

Builders also have been more focused on the rental market, as high prices have cut into the pool of potential buyers. Approved permits in February to start construction on single-family houses fell to their lowest annual rate in eight months, while permits for apartments surged to a 10-month high.

But the increase in sales of newly built homes indicates that construction may need to ramp up. A 4.7-month supply of new homes is on the market, a sign that inventories are unusually tight before the start of spring, when open houses become more crowded and sales increase.

New-home sales, which account for about 7 percent of the residential market, are tabulated when contracts are signed. That makes them a timelier barometer than transactions on existing homes.

The supply of previously owned homes is also tight, with an available supply of just 4.6 months compared with a historic average of around six months, the Realtors said Monday. The shortage of listings has caused prices of existing homes to climb 7.5 percent over the past year to a median of $202,600, pricing out many would-be buyers who lack the income needed to save for a down payment.

Because of limited supply and rising prices, previously owned homes sold at an annual pace of 4.88 million homes in February, slightly below last year's pace of 4.93 million.

Still, historically low mortgage rates and solid job growth have raised expectations among many economists that home sales will improve with the weather.

Over the past 12 months, employers have been adding an average of about 275,000 new jobs each month, as the unemployment rate has fallen to 5.5 percent from 6.7 percent, according to the Labor Department. The hiring has increased the total number of paychecks in the economy and the potential number of homebuyers.

Average 30-year fixed rates were 3.78 percent last week, according to the mortgage giant Freddie Mac, the Federal Home Loan Mortgage Corp. That average has fallen from a 52-week high of 4.41 percent, which should help to make housing more affordable.

Information for this article was contributed by Josh Boak of The Associated Press and by Michelle Jamrisko and Chris Middleton of Bloomberg News.

Business on 03/25/2015

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