March 24, 2017

Home Sales Rise in December

During December, new home sales increased 17.5%, according to statistics released today [.pdf] from the Housing Department and Census Bureau. After an annual rate of 280,000 new homes sold in November, the annual rate for December totaled 329,000 (revised to 325,000 in January). Despite this rise, new home sales in December were still 7.6% below the level of new home sales in December 2009, reflecting a modest decline. Also, new home sales throughout 2010 totaled 321,000 – the fewest amount of new home sales for a year since record keeping began in 1963.

With such a lackluster year for new home sales, the 17.5% rise in December provides a sign of light. However, a key reason for the December rise is due to new home sales in the West, where sales skyrocketed 72%. Comparatively, new home sales for the South increased 2% in December, the Midwest increased 3%, and the Northeast declined 5%. New home sales in November were the second lowest since 1963, so a subtle rise for most of the geographic regions does not mean much. These facts clearly show how the December increase was largely dependent on new home sales in the West.

In California, a home buyer tax credit expired on December 31st and encouraged buyers to take advantage of the credit while they could. This tax credit gave new home buyers 5% of the purchase price or a maximum of $10,000. Unsurprisingly, the expiration of this credit led to the surge in new home sales in December, as reflected with the 72% rise in the West.

A similar surge occurred on a national scale in April 2010, when a home buyer tax credit expired and led to more new home sales in April than any month in 2010. During April, there was an annual rate of 414,000 new home sales. Though, new home sales sharply fell to record lows after April. In fact, the rate of new home sales in December were the most since April.

With the expiration of the Californian tax credit in December, the monthly rise in new home sales are not based on organic market conditions, but are instead based on a tax credit. As a result, the two months with the most new home sales in 2010 both corresponded to months with expiring tax credits.

New home sales in the West are certain to decline in January, as occurred on a national scale in May 2010. More importantly, while the December rise in new home sales shows a sign of light, caution toward the housing market is still required.

Meanwhile, existing home sales increased for the second consecutive month during December, according to a separate set of statistics released last week from the National Association of Realtors. Existing homes include townhomes, condos, and single-family homes. Similar to new home sales, though, existing home sales in December were still below their level in December 2009.

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