Sales of New U.S. Homes Rose More Than Forecast to End 2014

Purchases of new homes in the U.S. jumped in December to the highest level in more than six years, a sign the industry is poised to keep expanding in 2015.

Sales increased 11.6 percent to a 481,000 annualized pace, exceeding all estimates in a Bloomberg survey of economists and the most since June 2008, figures from the Commerce Department showed Tuesday in Washington. Demand increased in three of four regions.

Gains in employment, borrowing costs close to historically low levels and easing credit may prompt more prospective buyers to enter the housing market. The improving outlook is driving up confidence among builders, and companies such as D.R. Horton Inc. and Lennar Corp. project the recovery will be sustained.

“There are some encouraging signs that will play out over the next few months for the housing sector,” Tom Simons, an economist at Jefferies LLC in New York, said before the report. Jefferies was the top forecaster for new home sales in the past two years, according to data compiled by Bloomberg. “Mortgage rates are pretty attractive and the job market is doing well. The spring selling season should be good.”

The median forecast of 75 economists surveyed by Bloomberg called for 450,000. Estimates ranged from 430,000 to 475,000. The reading for the prior month was revised to 431,000 rate from a previously reported 438,000.

Annual Advance

For all of 2014, builders sold 435,000 new houses, the most since 2008. The market peaked at a record 1.28 million in 2005 and slumped to 306,000 in 2011 after the housing bubble burst, the lowest in data going back to 1963.

The median sales price increased 8.2 percent from December 2013 to reach $298,100, the report showed.

The increase in purchases was led by a 54 percent jump in the Northeast, which took the level to the highest since February 2008. Demand climbed 18 percent in the South and 3.1 percent in the West. Sales fell 12 percent in the Midwest.

The supply of homes at the current sales rate fell to 5.5 months from 6 months in November. There were 219,000 new houses on the market at the end of December, the most since March 2010.

New-home sales account for about 7 percent of the residential market and are tabulated when contracts are signed, making them a timelier barometer than purchases of previously owned dwellings. The latter are calculated when a contract closes, typically a month or two later.

Existing Homes

Existing home sales rose less than anticipated in December as prices accelerated and inventory declined, figures from the National Association of Realtors showed on Jan. 23. For all of 2014, sales of previously-owned houses fell 3.1 percent to 4.93 million, halting a three-year winning streak.

The share of first-time buyers fell in 2014 to its lowest level in almost three decades, according to a late 2014 survey by the Realtors group.

Toll Brothers Inc., the largest U.S. builder of luxury homes, in December said it is unable to raise prices in much of the country. Lennar, a Miami-based builder, said it expects the industry will keep expanding even though profit margins are being hurt by a reduced ability to charge more for its houses.

“While a number of macroeconomic factors have contributed to ongoing choppiness in the recovery, with more pressure on sales prices and gross margins, we remain optimistic about the continuation of the recovery,” Lennar Chief Executive Officer Stuart Miller said in an earnings statement on Jan. 15.

Home Builder

Some companies are faring better. D.R. Horton, the largest U.S. homebuilder by revenue, on Monday reported fiscal first-quarter earnings that beat estimates as sales jumped.

Overall sentiment in the industry is close to a nine-year high, according to data from the National Association of Home Builders/Wells Fargo builder sentiment index. Demand will get a boost from the labor market, which is coming off its best year since 1999 with growth in payrolls and an unemployment rate that’s at a more than six-year low.

Low borrowing costs are providing support. The average 30-year, fixed-rate mortgage was 3.63 percent in the week ended Jan. 22, data from Freddie Mac in McLean, Virginia, showed. It reached a low of 3.31 percent in November 2012.

Credit conditions also continue to ease. The proportion of banks reporting loosening standards for prime mortgages in the past two quarters was the highest since the Federal Reserve began records in 2007, according to the central bank’s October survey of senior loan officers.

The improved outlook was reflected in residential construction data from the Commerce Department that showed builders began work on 1.01 million houses in 2014, the most since 2007.