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3 Reasons Not to Freak Out About the Weak New Home Sales Data

by Peter Thomas Ricci

The Census Bureau’s latest report on new home sales was a bit weak, but that does not mean that the sky is falling.

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We’ll get the bad news out of the way first: the sales of newly built single-family homes were down in December of last year, falling 7.0 percent from November to a rate of 445,000 sales, according to the latest report from the U.S. Census Bureau. Though that was 4.5 percent above Dec. 2012, it’s still the sixth worst year of new home sales on record; and to top it all off, median sales price was flat, the average sales price was down 8.5 percent and new-home inventory is near its lowest mark in 45 years.

On the surface, those stats make it seem like December was an abominable month for new construction, but thankfully, we’re here to brighten up your day. Here are three positive trends right now in construction:

1. It’s Not That Bad – True, December was a softer month of new home sales, but 2013 still represented a very strong forward progression from 2013. With an estimated 428,000 new homes sold in the year, 2013 grew 16.4 percent above 2012’s figure of 368,000. That’s the highest level of new home sales since 2008!

2. Inventory is Low, BUT – Sure, new home inventory is at a pretty low level right now, but consider some important context – for two solid years after the housing bubble popped in 2007, builders were burdened with millions of newly built homes that nobody wanted to buy (inventory hit a record high of 12.1 months in Jan. 2009!), but now finally, that glut of homes has worked its way through the market; also, that low inventory has been good for builders, who have seen very competitive prices for new homes.

3. The Future is Bright – Most important of all, though 2013 was a historically weak year, new home sales have nowhere to go but up. On his Calculated Risk blog, Bill McBride estimated that based on household formations and demographics, new home sales will rise to 750-800,000 in the next few years, which is quite a bit higher than 2013’s 428,000. So again, December may have been weak, and 2013 may have been historically lackluster, but the future is very bright for new home sales.

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