January 26, 2011 / 3:11 PM / 8 years ago

Instant view: New home sales surge in December

NEW YORK (Reuters) - New U.S. single-family home sales in December rose to their highest level in eight months and prices were the highest since April 2008, raising cautious optimism for a housing market recovery.

KEY POINTS: * The Commerce Department said sales jumped 17.5 percent to a seasonally adjusted 329,000 unit annual rate after a downwardly revised 280,000-unit pace in November. * Economists polled by Reuters had forecast new home sales rising to a 300,000-unit pace in December from a previously reported 290,000 unit rate. * Compared to December last year, sales were down 7.6 percent. Overall 2010 sales dropped 14.4 percent to a record 321,000-unit rate. * Data last week showed a surge in sales of previously owned home in December, but progress could be frustrated by a glut of homes from an unrelenting wave of foreclosures. The housing market has remained on the margins even as the broader economy shows signs of gaining strength and broadening out.

COMMENTS:

DEAN MAKI, CHIEF U.S. ECONOMIST, BARCLAYS CAPITAL, NEW YORK, NEW YORK:

“Clearly we are seeing stabilization in new home sales and this data suggests some upward momentum that we have seen in existing home sales. What is important to realize is even in a period of softer new home sales, inventory continues to decline. The level of inventory is at its lowest since the 1960s. This suggests the big declines in housing starts are now behind us and housing starts should be on a gradual trend in 2011. The Fed should be encouraged by the stabilization in home sales, but will need to see a significant upward momentum before taking comfort in it.”

MICHAEL WOOLFOLK, SENIOR CURRENCY STRATEGIST, BNY-MELLON

“It’s a good number, but where housing stabilizes is still debatable. We haven’t found a bottom yet and the best we can say is that perhaps we will find it this year. I think unemployment is the Fed’s top concern right now, but secondly, the continued decline in home prices and mortgage delinquencies is worrisome. I think the Fed will keep the option open to extend quantitative easing in the second half of the year.”

BRIAN BETHUNE, ECONOMIST, IHS GLOBAL INSIGHT, LEXINGTON, MASSACHUSETTS:

“It’s meaningful to the extent that there is a pattern of numbers showing increases. It’s a sign that there is a turnaround. Things are definitely perking up, but there is a question whether it’s sustainable. It’s a combination of three things. Housing affordability is at record high. We are getting slightly better labor performance and we are seeing some reduction in excess supply. It will move from a drag to neutral maybe a small positive for GDP. It’s a slow grind.”

LINDSEY PIEGZA, U.S. ECONOMIST, FTN FINANCIAL, NEW YORK

“New home sales rose by a whopping 17 percent—that is certainly some good news. Of course we have some seasonals in effect here. At the end of the year we see very little foot traffic, so when we do see some sales that tends to blow it out of the water.

“The median price was up 8.5 percent from a year ago. The big dent here was in the West. We saw a very significant rise in sales in the West. And that is perhaps because there was a more precipitous price decline in the West.

“We continue to see downward pressure in some of those areas—so what this does suggests is that we are seeing some of those market fundamentals work through that inventory. The inventory looks like the lowest level we’ve seen in quite some time and that is good news.

“The biggest factor here is the momentum that is going to roll over into the next year.”

JAKE DOLLARHIDE, CHIEF EXECUTIVE OFFICER OF LONGBOW ASSET MANAGEMENT, TULSA, OKLAHOMA:

“Today’s number could be one more glowing statistic that the sub-prime crisis mess, which led to the deepest recession since the Depression, is well in the rear-view mirror. It’s data such as this, and I think we’ll see other improvements, that could reinforce investors to buy U.S. stocks. This is just one small item that proves we’re truly out of the recession and that we’re in a full-fledged recovery.

“I’m surprised we’re not up higher after the State of the Union, which I found encouraging. Boeing is hurting the Dow today, but the Dow is the Dow. The S&P 500 is a more accurate gauge of the market, and that’s rising today.”

VIMOMBI NSHOM, ECONOMIST AT IFR ECONOMICS, A UNIT OF THOMSON REUTERS:

“While the increase in purchasing activity is encouraging, it is important to note that sales are coming off near-record low levels reached in the past five months (August, 274k). Sales were able to jump past the meager sales pace of 280k held in October and November predominately by a record 71.9 percent surge in home purchasing activity in the West (110k sold).”

MARKET REACTION: STOCKS: U.S. stocks rose slightly BONDS: U.S. Treasury bond prices slipped modestly FOREX: The dollar was little changed

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