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New Home Sales Are on the Rise

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Linked to consumer income

New home sales data are released every month by the U.S. Census Bureau. These figures are important housing and economic indicators. Sales of newly constructed residences in the US have a significant impact on market confidence, triggering consumption in related industries. As a result, these sales are a good indicator of economic well-being and speak to consumer income sensitivity. Normally, fewer new home sales serve as an early indicator of an economic slowdown.

Highest level in seven years

New home sales stood at 539,000 units in February, a robust gain of 7.8% over the 500,000 units sold in January, and the highest level since February 2008. Figures were much higher than the 470,000 units forecast by economists, which would have meant a small monthly decline.

Since a lull in July, sales of new homes have climbed 35.1%. Year-over-year, new home sales rose 24.8% in February. Employment opportunities, historically low mortgage rates, and an increase in household formation are underpinning demand for homes as rents rise. The median sales price rose 2.6% since February 2014, up to $275,500.

Regional breakdown

Surprisingly, new home sales surged by 153% in the Northeast, where snowstorms raged last month. The South, which is the largest region, saw purchases climb by 10% to 316,000 units, their highest level in seven years.

The South and the West account for 82% of the national total. Buying fell, however, in the Midwest by 12.9% to 54,000 units. And in the West, there was a 6% decline to 126,000 units.

Homebuilders deliver encouraging sales

Homebuilders such as Pulte Group (PHM), KB Homes (KBH), Toll Brothers (TOL), and Meritage Homes (MTH) are reporting that sales of newly built homes so far this year are headed up. For example, Meritage Homes (MTH) signed 606 sales contracts in January, a 48% increase from a year earlier. Luxury builder Toll Brothers (TOL) reported that it had 13% more orders in February than it did a year ago. And that’s after a 16% gain in orders reported for its fiscal quarter ended January 31.

New home sales are an important indicator for investors in the SPDR S&P Homebuilders ETF (XHB) and the iShares U.S. Home Construction ETF (ITB).

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