New home sales jump to 8-month high

By , staff reporterJanuary 26, 2011: 11:31 AM ET

NEW YORK (CNNMoney) -- New home sales climbed 17.5% in December to the highest level in eight months, the government reported Wednesday.

Sales of newly built single-family homes rose to an annual rate of 329,000 units last month, from a revised 280,000 units the month before, the Commerce Department said. That was the highest level since April. But compared with 2009, sales are down 7.6%.

The monthly sales figure was higher than the annual rate of 300,000 analysts surveyed by Briefing.com had expected.

"Though it's better than expected, we're still not getting a serious rebound," said Doug Roberts, chief investment strategist for Channel Capital Research. "This is a U-shaped situation, where we can have monthly blips when it's positive, but we're going to be bouncing along the bottom for a while."

Sales may have been boosted by homebuilders clearing out inventories at discounted rates at the end of the year, he said.

"People like to get their books in order at the end of the year," Roberts said. "It's akin to retailers clearing out inventory -- it's not getting any better so they don't want to hold onto it."

To clear out this inventory, Roberts said homebuilders have been offering special deals, like offering to throw in a granite counter-top instead of a standard one.

The median sales price of new homes was $241,500, up from $215,500 the month before, the government reported. At the end of December, 190,000 new homes were for sale, equal to a 6.9-month supply at the current pace.

While inventory was down from the 8-month supply available at the end of November, Roberts said homebuilders worry that foreclosures entering the market could cause supplies to swell.

"Foreclosures can act as competition to new home sales, so if they really start to resume that could have a negative impact," he said. "When banks take possession, they have to pay insurance and are responsible for taxes -- so everyone is saying they hope the situation improves so they don't have to write down more foreclosures, but they aren't disappearing yet."

Roberts said it will likely take a couple of years -- and maybe even five or six -- for homebuilders to make a significant dent in inventories and for home sales to really begin recovering.

"Housing tends to be a long cycle, where it does really well for a long time and then you go down and stabilize for a long time as well," said Roberts. "For now sales will bounce up and down, but long term I don't think anyone is talking about a shortage of homes out there."  

First Published: January 26, 2011: 10:16 AM ETRight Now

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