New-home sales rose 11% last month from February to a seasonally adjusted rate of 300,000 homes, the Commerce Department said Monday. That follows three straight monthly declines. Still, the pace remains far below the 700,000 homes a year that economists view as healthy.
Sales of new homes fell last year for the fifth consecutive year and the market is showing no signs of rebounding. Economists say it could take years before sales return to a healthy pace.
The median price of a new home rose nearly 3% from February to $213,800. New-home prices are about 34% higher than the median price for re-sales. That's more than twice the markup in healthy housing markets.
Builders are struggling to compete with a record number of foreclosures, which have forced down the price of re-sales and made them more of a bargain. The disparity has dragged on the economy. New homes represent a fraction of sales but they have an out-sized impact on the broader economy. Each new home creates an average of three jobs for a year and $90,000 in taxes, according to the National Association of Home Builders.
"New housing prices look much less attractive compared to cheap existing stock," said Yelena Shulyatyeva, an analyst with BNP Paribas. "As such, new housing demand will likely remain depressed throughout this year and next."
Many builders are waiting for the glut of foreclosures and other distressed properties to be cleared before stepping up construction. But with 1.2 million foreclosures forecast this year nationwide, according to foreclosure tracker RealtyTrac Inc., a turnaround isn't expected for years.
"You can't put lipstick on this pig," said Diane Swonk, chief economist at Mesirow Financial. "The new housing market remains weak no matter how the data is cut."
High unemployment, tight credit and a lingering fear that prices will fall further have kept people from making home purchases.
The seasonally adjusted number of new homes for sale in the United States is the fewest since the summer of 1967, when there were 110 million fewer people in the country.
Requests for building permits, a gauge of future construction, sank in the winter to their lowest level in more than 50 years. They recovered somewhat in March, but that improvement was spurred by a more than 28% jump in permits for apartment and condo buildings.
New-home sales rose in most regions of the country last month. Sales jumped nearly 67% in the Northeast, which was hit hard by wintry weather; by almost 26% in the West, which saw a surge in buying three months ago because of a Jan. 1 deadline for a California state tax credit; and by nearly 13% in the Midwest. Sales fell 0.6% in the South, which accounts for the nation's biggest home-sale market.
Given the pace of new-home sales, it would take more than 7 months to clear them off the market. Economists say a six-month supply of homes is healthy.