The market for newly built single-family homes saw sales increases in January; what does that mean for the housing market?

Amidst a period of less-than-enthralling news for housing, the Census Bureau’s latest report on sales of newly built single-family homes is a welcome change of pace.

Covering the housing market in January, the report found that new home sales increased 9.6 percent from December to January to a rate of 468,000 sales, which was also 2.2 percent above Jan. 2013’s estimate. That’s the highest rate for new home sales in five years.

New Home Sales in January

Other important takeaways from the Census Bureau’s report include:

• The median sales price for new homes in January was $260,100; that’s down 3.7 percent from December, but up 14.8 percent from Jan. 2013.
• By contrast, the average sales price was uniformly positive, rising 3.6 percent from December and 12.7 percent from Jan. 2013.
• New home inventory, though, remains low at a 4.7-months supply; that’s marginally down from the 5.0-months supply of December, but above last January’s 4.1-months.

The Nature of New Construction

So, with numbers like those in January, all is well in new construction, right? Well…not necessarily.

For one, new home sales are quite volatile on a month-to-month basis (anyone remember the 7 percent drop from November to December that freaked everyone out?), so though January’s increase looks promising, it should be taken with a grain of salt. Even with that in mind, the larger trend in new home sales is still positive; using a three-month average, sales are up 7 percent year-over-year.

The biggest nuance to new home sales, though, is definitely its relatively low market share. With all the overbuilding that occurred during the boom years (and with the U.S.’ vacancy rate remaining stubbornly high), existing-home sales have largely driven housing activity the last five years, and the ratio between new and existing sales has been way out of whack. In January, for instance, the existing-to-new ratio was nearly 10:1; the normal ratio is just 6:1.

For more perspective, here’s a handy chart from Trulia’s Jed Kolko that shows the ratio: