The Commerce Department said Tuesday that new home sales climbed 11.6 per cent last month to a seasonally adjusted annual rate of 481,000. The gains were not enough to offset essentially flat home-buying over the course of 2014. Just 435,000 new homes were bought last year, a modest 1.2 per cent improvement from 2013.
The growth in December pointed to rising sales in 2015, buoyed by the combination of strong hiring in recent months and drastically lower mortgage rates. Home values are also rising at a slower pace, improving affordability for would-be buyers.
"We may see continued momentum in new home sales kick off 2015," said Derek Lindsey, an analyst at the bank BNP Paribas.
Over the past 12 months, median prices for new homes rose 8.2 per cent to $298,100. That increase masks the gains on the lower-end of the new construction market. The share of new-homes priced $200,000 to $299,999 increased in December to 32 per cent, up from 30 per cent in the prior two months.
"This is where the first-timers are likely found, so it is encouraging that they appeared to be enticed into the new home market," noted Jennifer Lee, a senior economist at BMO Capital Markets.
Last year disappointed in part because builders largely focused on higher-end houses, which limited the number of would-be buyers and kept the pace of construction below historic levels. Roughly 700,000 new homes were sold in the 1990s, nearly a third more than in 2014.
Much of the gains in December came from a 53.6 per cent jump in sales in the Northeast and a 17.7 per cent increase in the South. The West reported a slight increase in sales, while buying in the Midwest slipped.
The improved health of the U.S. economy should help boost sales in the coming months.
Average rates for 30-year mortgages dropped to 3.63 per cent last week, down from 4.39 per cent a year ago, according to the mortgage firm Freddie Mac. That steep decline makes it cheaper for buyers to borrow, helping them afford larger and more expensive homes. So far, homeowners are primarily relying on the lower rates to refinance their mortgages. Purchases are up 3 per cent over the past 12 months, according to the Mortgage Bankers Association.
At the same time, the growth in prices for existing homes has been steadily slowing, putting more properties within reach of buyers who had previously been priced out of the market. The Standard & Poor's/Case-Shiller 20-city home price index, released Tuesday, rose 4.3 per cent in November from 12 months earlier. That's down slightly from a 4.5 per cent pace in October and double-digit gains in early 2014.
Would-be buyers are likely to moderate any price growth caused by increased demand, even if the figures may be bumpy from month-to-month, said Hela Richardson, chief economist at the real estate brokerage Redfin.
"We're seeing that the hottest demand is at the most affordable price points," Richardson said. "That means if prices go up too far too fast, buyers will step back and wait for them to drop again."
Solid hiring over the past year should help contribute to income gains and real estate sales. The unemployment rate has plunged to 5.6 per cent from 6.7 per cent a year ago, as employers added nearly three million jobs last year, according to the Labor Department. While average wages have barely nudged upward, the job growth has contributed to more Americans with paychecks — which may spur additional home-buying.
On top of that, nearly half a million people who lost their home to foreclosure or a short sale during the financial crisis are now beyond the seven-year period needed to repair their credit and quality for a mortgage, according to RealtyTrac, the real estate analyst firm.
The National Association of Realtors said last week that sales of existing homes rose 2.4 per cent last month to a seasonally adjusted annual rate of 5.04 million.
Construction firms still expect growth this year, although their enthusiasm has waned slightly. The National Association of Home Builders/Wells Fargo builder sentiment index fell slightly this month to 57, down one point from a revised reading of 58 in December. Despite the decrease, any reading above 50 indicates that more builders view sales conditions as good rather than poor.