New Home Sales Improving

Posted by Laine Smith on 3/7/14 9:15 AM

Topics: Economy

Sales of new U.S. single-family homes climbed to a five and half year high in January despite January 2014 being the coldest start to the year since 2011. Recent land development and construction data signals that as bank lending for construction increases, the supply crunch for homes could ease due to an increase in new home building in the coming months.

new homes

New home purchases increased 9.6 percent in January, exceeding economists’ highest predictions and reaching a seasonally adjusted annual rate of 468,000 units, the highest level since July 2008. Economists had forecasted new homes sales to fall to a 400,000-unit pace in January.

Demand for new homes improved in three of four regions of the United States. Sales rose 73.7 percent in the Northeast, 11 percent in the West and 10.4 percent in the South. The Midwest experienced a drop in new home transactions due to the unusually cold weather which prevented builders from breaking frozen ground and buyers from shopping for properties.

Though new home sales represent a small segment of the housing market, at approximately 7 percent, they are one of the keys to the market’s recovery. According to the National Association of Home Builders (NAHB), each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue.

Although February’s supply of new houses on the market remained unchanged at 184,000 units, construction firms expect a growing demand for new housing this year. The NAHB predicts a 25 percent increase in new home construction for 2014 due to:

- Lenders recovering from the downturn are now again funding developers

- Low inventory in previously-owned homes

- Pent-up demand

According to the Harvard Joint Center for Housing Studies, research indicates that by 2020, the U.S. will need 1.8 million homes each year to meet consumer demand, which can’t be fulfilled by existing home sales alone.

The recent increase in builder lending could spur additional home construction and possibly put downward pressure on home prices that have been rapidly increasing over the last two years. Though rising prices are great for sellers, low inventory has priced many first-time buyers out of the housing market and caused appraisal issues for buyers trying to utilize down payment assistant programs.

As more and more builders begin breaking ground, if you fall in love with a property you need to be prepared to jump at the opportunity and have your funding lined up right away. At Compass we have numerous lending options from initial construction to end loan financing to fit whatever your particular situation so you can get the home of your dreams.

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