After new home sales recorded an all-time low in February, new home sales increased 11.1% during March, according to data [.pdf] released today from the Housing Department and Census Bureau. Despite this slight increase, the amount of new home sales during March rank seventh among the ten lowest months of home sales since record keeping began in 1963. Similar to recent residential construction results, new home sales in March brought an improvement compared to February, but broader comparisons show a historically deficient level.
Following a revised annual rate of 270,000 new homes sold in February, the annual rate in March totaled 300,000. Comparatively, the annual rate of new home sales in March 2010 was 384,000, which is 21.9% greater than March 2011. Also, new home sales in each of the four major geographic regions were less in March 2011 than March 2010. These annual comparisons clearly show a decline in new home sales over the past twelve months.
However, at this point in 2010, the first-time home buyer tax credit was still in effect, which provided buyers with 10% of the home value or a maximum of $8,000. This nationwide credit required homes to be under contract by April 30th. With this expiration date, new home sales in March [.pdf] and April [.pdf] of 2010 were higher than normal. In fact, new home sales in March and April of 2010 were higher than any other month in 2010, as well as thus far in 2011.
Since the expiration of a tax credit provided an artificial boost to new home sales last March, some argue it is unfair to compare the results of March 2010 to March 2011, due to March 2011 not having a similar boost. While this may not be a completely fair comparison, this comparison between March 2010 and 2011 still shows how a tax credit boosts activity, yet simultaneously shows the inorganic influence of a tax credit and how their absence can deter activity.
Some argue the government should implement another tax credit to boost the housing market, but others reply tax credits serve as a crutch and are not ideal for the longevity of the housing market. Regardless of whether the government implements a new tax credit to boost the housing market, current buying conditions are already favorable.
In addition to six consecutive months of declining property values, the 30-year mortgage rate is currently at a relatively low rate of 4.80%. Also, the National Realtors Association’s home affordability index is at its lowest point since 1970, with the typical monthly mortgage and interest payment for the purchase of a median-priced existing home at only 13% of gross household income [.pdf].
While these buying conditions may be favorable, some buyers still find it too difficult to obtain a mortgage. The average credit score of a home buyer is currently 760, which is an increase from 720 in 2007. Additionally, an inflated unemployment rate of 8.8% creates fewer prospective home buyers, which lowers the demand for housing. Therefore, higher credit requirements and fewer prospective buyers are two important contributions to the historically deficient housing market.
Altogether, new home sales increased 11% in March, but these results remain well below prosperous assessments of the past. Particularly with the elevated unemployment rate, the general pattern of stagnation in home sales will likely continue in April.