New home sales leap at year-end

For an industry that has been battered for several years, new homes sales managed to jump by nearly 18% at the end of 2010, rising to a seasonally adjusted annual rate of 329,000. At the current pace of sales, the supply of homes on the market dipped from 8.0 months to 6.9 months. 

Still, sales are 17% below one year ago, and at 321,000 new homes sold in 2010, builders saw the smallest number of sales since records began back in 1963.



Sales appear to be stabilizing, and we are even seeing a small uptick in single family building permits (see Housing – the soft underbelly of the economy). Moreover, the actual supply of new homes continues to recede (see chart below) and stands at the lowest reading since the 1968.



But any unexpected rise in sales could very quickly be met by the shadow inventory that banks still hold, which would likely keep pressure on prices.

Keeping with recent themes, a recovery in the labor market, coupled with relatively stable interest rates and more reasonable credit conditions, would go a long way in instilling confidence and putting a firmer foundation under what has been an unstable market.