New-Home Sales Unexpectedly Rise

Sales rose 2.9% in December, boosting homebuilders' shares.
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The Commerce Department said Friday that sales of new homes unexpectedly rose 2.9% in December, giving support to homebuilders that were hammered earlier this week by soft existing-home sales data.

The December adjusted annual rate for new-home sales was 1.269 million, 2.9% above the revised November rate of 1.233 million. Economists expected a decline to 1.228 million in December, according to

Reuters

. The rate is 1.8% above the December 2004 tally.

The median sales price in the month was $221,800, down from last year's figure of $229,600, reflecting a move to a more affordable product mix.

The seasonally adjusted estimate of new houses for sale was 516,000 and represents 4.9 months of supply at the current sales rate. An estimated 1.282 million new homes were sold in 2005, which was 6.6% above 2004.

"It's actually a good report," says Phillip Neuhart, an economic analyst with Wachovia. "It comes after some disappointing home sales and housing starts data for December. This should give a lift to the general view of housing. I feel like the market was really down on housing after the last few reports. This is a much more upbeat report."

Homebuilders rallied on the news. The Philadelphia Housing Index rose 1.5%, led by a 3.4% jump at

D.R. Horton

(DHI) - Get Report

and a 3% lift at

Centex

(CTX)

.

Earlier this week, homebuilder stocks came under pressure when the National Association of Realtors said that sales of existing homes -- including single-family, townhomes, condominiums and co-ops -- dropped 5.7% to a seasonally adjusted annual rate of 6.6 million units in December from the revised pace of 7 million in November. Sales were 3.1% lower than the 6.81 million-unit level in December 2004. Economists expected an annual rate of 6.89 million unit sales in December.

The mixed messages being offered by the existing- and new-home sales data can be explained by what constitutes a sale in each report.

Existing-home sales are based off closings, which typically lag sales by two to three months. New-home sales are based off orders, not closings. The weakness in December's existing-home sales (closings) may be explained by the fact that consumers were facing hefty gas prices near $3-a-gallon in September, when some of the sales might have occurred, Neuhart says.