New Home Sales Data Boosts Homebuilders
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Hovnanian Enterprises, Inc. (HOV), Pulte Homes, Inc. (PHM), Lennar Corporation (LEN) and other players in the real estate business moved higher early in the session as the Department of Commerce reported an unexpected jump in new home sales for last month.
New Home Sales Jump in October
New home sales jumped unexpectedly in October despite poor weather and uncertainty over the future of the first-time home buyers’ tax credit. Sales of single-family homes moved up 6.2% to a seasonally adjusted annual rate of 430,000, according to a report by the Commerce Department on Wednesday. Meanwhile, the market was expecting a reading of 404,000 for the month.
A second piece of good news buried within the report was that the median price for new homes fell by only 0.5% to $212,200. Many economists had been worried that the majority of the improvement in sales was due to an increase in foreclosures and a continued decline in price, but this latest economic report has helped to convince some that a real rebound may be in place.
The Homebuyer Tax Credit Lives On…
A key remaining issue is the $8,000 tax credit for home buyers, which was set to expire in October but was extended through April. Regulators also expanded the tax credit to include a $6,500 credit for existing home owners who have lived in their primary residence for five of the last eight years and are moving up to a new residence.
The tax credit is expected to boost new and existing home sales by about 180,000 over the duration, including sales of 40,000 new homes and 26,000 vacant homes. Lawmakers are also hoping that the tax credit will help create more than 200,000 new jobs in residential construction and related fields, as well as increase the spending power of the tax credit recipients.
It’s Not All Good News!
Despite the positive economic data, the housing market still faces many headwinds going forward. Some 23% of U.S. homeowners are underwater on their mortgages, meaning that they owe more money on their mortgage than their home is worth. Meanwhile, about 588,000 borrowers defaulted on their mortgages last year even though they could afford to pay.
Consumers also face a number of issues in this economy, including rising unemployment and a continued lack of credit. A higher stock market and slowing jumps in unemployment have helped ease concerns, but many economists still believe that a recovery may take at least through 2010 in order to take hold and for consumers to regain confidence.
The Takeaway…
- New home sales increased an unexpected 6.2% in October, despite bad weather and uncertainty about the homebuyer tax credit.
- Regulators have extended both the timeframe and eligibility requirements for the homebuyer tax credit, which could help boost the industry further.
- Consumers remain the weak link with rising unemployment and tightened credit putting a damper on overall confidence.
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