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Solid new-home sales lift hopes for housing market

WASHINGTON (AP) - A surprisingly strong pace of new-home sales last month has boosted hopes that the spring buying season will be solid enough to lift the overall economy.

Sales of new homes rebounded in January to the fastest rate in more than five years. The strength in purchases followed a slowdown that had been linked to higher mortgage rates and severe winter weather.

The report Wednesday from the Commerce Department helped support stock prices, especially shares of homebuilders.

Many economists predict that sales of both new and existing homes will rise in 2014, lifted by an improving economy and steady job growth.

"Despite higher mortgage rates, the fundamentals for new-home sales and residential construction are solid," said Stuart Hoffman, chief economist at PNC Financial Services Group. "The economy is adding jobs and incomes are growing, making households more confident."

Sales of new homes rose 9.6 percent in January to a seasonally adjusted annual rate of 468,000. It was the fastest pace since July 2008.

The surge came as a surprise to economists. Most had expected a decline in January, in part because they thought purchases would be held back by winter storms in much of the country. Sales had fallen 3.8 percent in December and 1.8 percent in November, prompting concerns that the housing recovery might be losing momentum.

Housing, while still a long way from the boom of several years ago, has been recovering over the past two years. Residential construction has grown at double-digit rates over the past two years and contributed about one-third of a percentage point to overall economic growth last year.

Hoffman said he expected construction and sales of new and existing homes to post further gains in 2014, though a bit less than in 2013.

"There is significant pent-up demand for new homes after potential buyers have put off purchases for years because of concerns about the economy," he said.

Hoffman foresees sales of new homes climbing to around 500,000 this year, up from 428,000 in 2013, when sales had risen 16.3 percent to their highest level in five years.

Other economists are even more optimistic. Economists at IHS Global Insight are forecasting that new-home sales will hit 528,000 this year, a 23.4 percent increase over last year.

Wednesday's brighter-than-expected news on housing helped lift spirits on Wall Street, sending the Standard & Poor's 500 index back into record territory and sharply boosting stock prices of several home builders.

Shares of both PulteGroup and Lennar rose about 3 percent.

Lowe's shares surged nearly 5 percent. The home-improvement retailer said its net income rose 6 percent in the most recent quarter, thanks in part to the housing recovery.

Housing indicators are especially hard to read in the winter because of the unpredictable effects of severe weather. But analysts said a variety of signs point to underlying strength that should support sales gains in the March-June spring selling season.

"We expect any drop-off in housing to be a pause and not a retrenchment," said Michael Gapen, an economist at Barclays Research.

Economists are optimistic about further sales gains because they think the overall economy will strengthen this year as more people find jobs and last year's drag from higher federal taxes and government spending cuts eases.

The sales gain for new homes in January was led by a 74 percent surge in the Northeast. Sales were up 11 percent in the West and 10 percent in the South. The only region where sales declined was the Midwest, where they fell 17 percent, likely a reflection of winter storms.

The median price of a new home sold in January was up 3.4 percent from a year ago to $260,100.

Home prices are forecast to rise in 2014 but more slowly than last year. The Standard & Poor's/Case-Shiller 20-city home price index rose by a healthy 13.4 percent in 2013. That was the largest calendar gain in eight years.

One assumption underlying economists' expectations on housing: Even as the Federal Reserve keeps scaling backs its bond purchases, which were used to keep long-term rates low, mortgage rates will rise only gradually this year.

The average rate on a 30-year mortgage rose to 4.33 percent last week, up from 4.28 percent the previous week. Rates had surged about 1.25 percentage points from May through September, peaking at 4.6 percent, but have since retreated a bit.


(Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)
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