New home sales in April rose to their highest level in eight years -- and reached their highest median price, ever -- but don’t throw a house-warming party for an economic recovery just yet.
Monthly housing numbers can be extremely volatile. And, April aside, sales gains have actually been pretty modest this year. In the first three months of 2016, home sales rose less than 1 percent from the same period in 2015, according to Census Bureau data.
The main reason for April’s jump is pent-up demand generated from low new housing inventories. Currently there’s a 4.7-month supply of new homes, whereas a six-month supply is considered normal, according to Bloomberg Intelligence analyst Drew Reading.
Homebuyers, of course, are also eager to lock in cheap mortgages before the Federal Reserve hikes interest rates.
In the wake of the mortgage crisis that surfaced in 2006, homebuilders have focused on the middle and upper-end of the housing market, where profits are greatest. That’s meant more expensive homes have come on the market, but not more homes overall. Indeed, new homes are priced at an extreme premium to existing ones, with high-end sales causing median housing prices to rise to a record $321,000 in April.
In the first quarter of 2016, 26 percent of housing sales were for new homes priced over $400,000 -- up from 18 percent for the same quarter in 2013, according to Census Bureau data. Sales of more affordable homes have not recovered at the same pace, keeping a full recovery at bay.
While April’s housing numbers are a welcome sign, they still don’t mean that the economy finally has a solid foundation.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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