uploads///New Home Sales

Why did new home sales surge in December?

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Dec. 4 2020, Updated 10:52 a.m. ET

New home sales

The report on new home sales is released by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. The report is considered a leading indicator of economic activity.

If more home seekers are purchasing new homes rather than pre-owned ones, it shows the strength of their spending power. The report looks at new, privately owned, single-family homes sold in a month.

The U.S. Census Bureau states that its new home sales data are based on “the signing of a sales contract or the acceptance of a deposit.” This is not dependent on the stage the house is in. The stage can be anywhere from not yet started to already completed.

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December 2014 report

The report on new home sales shows that sales of new single-family homes jumped 11.6% in December from a month ago to a seasonally adjusted annual rate of 481,000. This rate is higher by 8.8% from December 2013. November’s home sales were revised down to 431,000 from 438,000 reported earlier. It’s important to understand that these numbers are volatile and thus subject to large revisions.

There were 219,000 houses for sale at the end of December 2014. Given the current sales rate of new homes, this number indicates a supply of 5.5 months.

The U.S. Census Bureau also informed that 435,000 new homes were sold in the whole of 2014, 1.2% higher than in 2013.

The median sales price of new homes sold in the month was $298,100. The median represents the middle-point sales price among all prices arranged whether in an increasing or decreasing order. Meanwhile, the average price was $377,800. This means that homebuilders sold a higher number of expensive homes.

However, 32% of new homes sold were in the price range of $200,000–$299,000. Homebuilders that cater more to entry-level purchasers include PulteGroup (PHM), D.R. Horton (DHI), and Lennar (LEN). Their profitability affects ETFs such as the SPDR S&P Homebuilder ETF (XHB).

Forecasts for home-related retailers such as Lowe’s (LOW) and Home Depot (HD) are also affected by these reports. The higher the number of homes sold, the higher business for these retailers.

In the next article, we’ll look at the pending home sales report.

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