U.S. New Home Sales Rise By 5.7%, Inventory Drops 9%

The sales of new homes in the United States climbed by 5.7 percent from the seasonally adjusted annual rate of 368,000 in August, to 389,000 in September, according to the  Department of Commerce.  For the past year, the sales increase for new homes increased by 27.1 percent.

The figure exceeded the expectations of economists. Based on the data compiled by the Dow Jones, analysts estimated an annual sales rate of 386,000.

U.S. New Home Sales Rise By 5.7%, Inventory Drops 9%

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The inventory of houses for sale is becoming low, due to the rising prices for homes. Last month, there were 145,000 new homes for sale last month, which is close to the record low of 143,ooo new homes.

Based on  data from the Department of Commerce, new home sales were up within the three regions in the country. Sales of new homes rose by 16.7 percent in the North East, 16.8 percent in the South, and 3.9 percent in the West. New home sales in  the Midwest declined by 37.3 percent.

The figure indicated that the recovery in the housing market is becoming strong ,and prices for homes are going up. In September, the median sales price for new houses sold was $242,400, and the average sales price was $292,400.

According to the Federal Housing Finance Agency, the price of homes in the United States increased for the seventh straight month in August, by 0.7 percent, on a seasonally adjusted from the previous month. The calculation was based on the price of houses sold with mortgages backed by mortgage giants Fannie Mae (OTC:FNMA) and Freddie Mac.

Last week, the Department of Commerce also released data that showed a 15 percent increase in the construction of new houses in September, which is the highest level since July 2008. The new construction rate for 2012 is almost 35 percent higher than the recorded rate in 2011.

New home inventory dropped 9.4% y/y to 145,000 units, just above the record-low levels (dating back to 1963) set in July and August (143,000 units). Overall, the industry has continued to maintain a very limited amount of spec inventory for sale. Some analysts believe this may be a function of how limited new capital and development loans are for private builders looking to put new starts in the ground. This limited supply of new home inventory is contributing to the modest pricing power some builders have recently reported. Specifically, the number of completed and unsold homes declined 38% y/y to 38,000 units (lowest figure ever recorded), while the median age of spec units stood at 6.5 months in September (down from 7.6 months in September 2011). The public builders may get more aggressive in starting spec units for prospective buyers in 2013 if sales trends remain on an encouraging trajectory to close out the year.

Citigroup notes that recent data suggest growth picked up a little in Q3, to about 2.3% QoQ SAAR, while housing is improving. Additionally, the Citi Financial Conditions Index has reached its most accommodative reading at any time since the Fed began the current easing cycle more than five years ago2. Moreover, there probably is considerable pent-up business demand that could be unleashed if the fiscal cliff is safely averted. They expect growth will remain at a modest pace (1-2% QoQ SAAR) in H1-2013, but then rise to 3%+ in H2.

On the bad housing news front, Raymond James  notes that purchase applications are down 8.3%. The seasonally adjusted MBA Purchase Application Index fell 8.3% week-over-week, ending a streak of positive momentum, after moving up 0.9% in the prior week and 2.6% the week before that. The MBA Purchase Index which had steadily trended higher since mid-August, fell to its lowest level since the end of August. However, the index was upwardly adjusted in the previous week for the Columbus Day holiday, and on an unadjusted basis, the index this week decreased a less severe 2% w/w.

The recent lows in mortgage rates and positive press regarding home prices have helped pull more buyers off the fence. Nevertheless, many of those buyers are now finding a very limited inventory selection after this year’s surge of investor capital accumulating large-scale single-family rental portfolios. In many previously hard-hit western markets,  local and institutional investors are purchasing single-family homes in rapid succession, turning them into rental properties through cash deals. These all-cash investors have made it difficult for mortgage-dependent buyers to compete, thus driving many to the less competitive and repair-free new home market.