Consumer confidence and home sales surge, hinting at a big 2015 for housing

The positive signals for the US housing market in early 2015 continued this week, with new homes joining their pre-owned counterparts in a December sales rebound. 

New home sales surged 11.6 percent last month to a 481,000 annualized pace, according to data released Tuesday by the Commerce Department. That was well above economists’ expectations of a 450,000 December pace and a bounce back from November, which was revised downward to a 431,000 pace. 

It was the best December for the new home market in nearly six years.

Home prices, too, are going up across the US, albeit more slowly than they were a year ago. In a report also released Tuesday, prices on S&P/Case Shiller’s national index inched up 0.8 percent in November and 4.7 percent year-over-year. But slower price increases, analysts say, should not be interpreted as a sign of lessening demand.

“This number paints a misleading picture of the housing market,” IHS Global Insight economists Patrick Newport and Stephanie Karol write in an e-mailed analysis. “All in all, evidence suggests that demand is strong nationwide: both the S&P/Case-Shiller national index and the FHFA measure [another leading index] showed yearly home price growth accelerating in November. By these more comprehensive measures, price growth is stabilizing in the 4-5 percent range: a healthy sign.”

Recent sales numbers, too, seem to bear out that logic. New home sales make up a relatively small portion of the overall market, but the much-larger pre-owned market also perked up in December, rising 2.4 percent on the month.

Both gains capped off a relatively lackluster 2014 (new home sales improved just 1.2 percent over 2013), and gave economists more evidence that 2015 could be a big improvement for the housing market. Both builders and consumers are growing more and more confident about the economy overall; in data also released Tuesday, The Conference Board’s index of US consumer confidence surged to 102.9 in January, blowing past expectations of a 95.5 reading. Monthly gas prices at or below $2.00 per gallon in most of the country, a strong dollar, a healthy job market, a pickup in wages (finally), and new rules easing up on FHA mortgage insurance premiums that could benefit first-time buyers all portend a much more buyer-friendly market in the coming year. 

Earlier this month, measures of builder optimism and housing starts also came in strong, suggesting that the construction industry is readying for a pickup in housing demand in the coming months.

Economists caution that one strong month is hardly a trend, especially in the case of a small, sometimes-volatile measure like new home sales. But December’s data is reason for cautious optimism.

“As more first-time buyers are empowered to purchase an existing home, the sellers of those homes will be in a better position to put down a deposit on a new one,” Newport and Karol write. “Since we expect wage growth to support additional household formation in 2015, these forces will help to clear some important obstacles which have restrained demand in recent years.”