New Homes Sales at Two-Year High

By:
Peter King | May 26, 2010

New home sales surged in April to their highest rate in two years, as purchasers took advantage of expiring tax credits for new and repeat homebuyers. 

Sales of new, single-family homes were up nearly 15 percent for the month, to a seasonally adjusted annual rate of 504,000, according to figures released by the Census Bureau this morning. It’s the highest sales rate reported since May 2008, which matched April’s figure, and represent a nearly 48 percent annual increase over the April 2009 rate of 341,000.
 
New home sales have now risen sharply for two consecutive months after generally weakening since last summer. Sales bottomed out at an estimated rate of 338,000 in February, their lowest since the collapse of the housing market, before rebounding to 439,000 in March, then increasing in the current survey.
 
The Census Bureau figures do include a relatively high sampling error, meaning actual sales could be significantly higher or lower than the reported results.
 

Big drop in median price to lowest in six years

 
Even as sales increased, the median sales price dropped sharply in April, to $198,400, down from $219,600 in March, their lowest level since December 2003. The drop is particularly striking given that median prices had been holding fairly stable around $220,000 the previous five months and had dipped below $213,000 only twice since the October 2008 financial crisis.
 
The expiring tax credits offered an $8,000 credit for first-time buyers and a $6,500 credit for repeat buyers who signed sales contracts by April 30. The National Association of Realtors recently reported that first-time buyers accounted for nearly half of existing home sales in April; it’s not clear whether first-time buyers may have accounted for a disproportionate share of new home sales as well.
 
However, increasing sales in the sub- $200,000 range accounted for nearly all of April’s sales increases, with sales in that price range up nearly 50 percent from March. By contrast, new home sales actually declined in November, right before the original expiration date of the first-time homebuyer credit, before it was extended by Congress, although existing home sales spiked at that time.
 
Most analysts expect to see at least a temporary downturn in home sales in the coming months following the expiration of the tax credits, although mortgage interest rates are expected to remain low.

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