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New-home sales reach decade-high level in 2017

New-home sales finished the year at a 10-year high, the U.S. Census Bureau reported on Thursday.

An estimated 608,000 new homes were sold across the country in 2017, the highest number since 2007, when 774,000 newly built homes were sold, the agency reported. The yearly sales, which are based on a 12-month average, also cracked the 600,000-unit mark for the first time in a decade.

homesalesdata“On balance, the fact that the yearly figure was 608,000 new homes sold, that was a little over 8 percent higher than a year before, I think that is a positive indicator,” said George Ratiu, the National Association of Realtors’ (NAR's) managing director of housing and commercial research.

Ratiu said the housing market isn’t entirely healthy, however. New-home sales ran at about half the rate of new household formations in 2017, which came in at 1.1 million. This wide gap between new home sales and household formations, he said, is further evidence of a serious housing shortage.

The new-home sales market is a fraction of the size of the existing-home market, where 5.5 million homes were estimated to have been sold in 2017. New homes tend to be more expensive than existing homes and aimed at move-up buyers. Building and selling more new homes is seen as a key to free up the tight inventories of existing homes, particularly starter homes typically purchased by first-time buyers. 

On Wednesday, NAR released its existing-home sales report that suggested that current inventories of existing homes for sale are hovering around a three-months supply. Roughly 850,000 new single-family homes were started in 2017, according to the National Association of Home Builders. That is short of the 1.2 million considered needed. 

“We are down by double-digit rates [in inventories of existing homes] on a yearly basis, and it tells you that everything that is basically on the market today can be exhausted in three months,” Ratiu said. “A balanced market is six to seven months.”

Ratiu also noted that the sales of existing homes in lower-price buckets are down compared to 2016. This suggests an acute shortage of available homes priced under $250,000.

“It is obvious that the new-home construction and sales are not meeting the demand,” Ratiu said. “I welcome the increase in new-home sales. I do think we could use quite a bit more.”

The annualized pace of new-home sales for December — which gives a snapshot of the pace of sales during that particular month — continued to show volatility.

In December, the annual pace was estimated at 625,000 homes, which was down 9.3 percent from an especially strong November, which posted the strongest pace of the year at 689,000 units, the U.S. Census Bureau reported. December’s annualized pace was up 14 percent from the December 2016 reading of 548,000 units, however.

In December, sales were down sharply in all regions compared to November. On a year-over-year basis, however, new-home sales ran higher in December in all regions except for the Midwest. In the Midwest, new-home sales fell by 3.1 percent compared to the December 2016 level.


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