The Supply Of New Homes For Sale Just Dropped Off A Cliff

The supply of newly-built homes for sales plummeted in April, a positive indicator for the Fairfield housing market as we head into the summer months.

It's no wonder that homebuilders are breaking new ground at the fastest clip in 2 years. 

At the current sales pace, the nation's complete supply of new homes would be sold in just 5 month's time.  That's more than double the pace of a year ago.

Also, as more good news, in terms of total housing units, the government reports that New Home Sales topped one half-million homes sold for the first time since May 2008.

It's a similar spike as within the Existing Home Sales data released earlier this week.

But before we declare the housing market "repaired in full", we have to consider a few of the reasons why home sales are charting so strongly.

The first reason is the federal homebuyer tax credit's April 30 expiration. In order to claim up to $8,000 in tax credits, home buyers must have been in mutual contract for a property before May 1. There is no doubt this contributed to a run-up in sales, especially among first-time home buyers.

The second reason is that mortgage rates have remained exceptionally low, defying expert predictions.  Low rates don't sell homes, but they do make monthly payments easier to manage for households torn between renting or buying.

And, lastly, March and April's new home sales may have been buoyed by aggressive discounting on behalf of homebuilders.  As compared to February 2010, April's average new home sale price was lower by 13 percent.  That's a sharp drop in a short period of time.

For now, though, homes are selling, supplies are dropping, and buyer interest is high. It's no wonder builder confidence is soaring.

New Homes Sales Were Strong in March, But Not As Strong As The News Would Have You Believe

The sales of newly-built homes soared in March. Even more than what was expected. But the news may not be as glowing as what the media is telling us.

Take a look at the headlines from last Friday:

• Sales of new homes rocketed up 27 percent in March (WaPo)
• New-home sales rise fastest in 47 years (CNNMoney)
• Sales of New Homes Climb by Most Since 1963 (Business Week)

None of these statements is false, per se, but each is somewhat misleading.  The biggest reason why March's New Home Sales was even able to rise 27 percent is because data from the month before it -- February -- was the worst in New Home Sales history.

In February, new homes sold posted its lowest level in recorded history. 

A better comparison would be against March a year earlier; or October 2009, the month before the home buyer tax credit's initial expiration date. 

Against both of those time periods, March 2010 fared well.

Home buyers - first-timers and repeats alike -- went under contract last month, taking advantage of the soon-to-expire federal home buyer tax credit program.  The credit gives up to $8,000 for first-time buyers and up to $6,500 for repeat ones.

Buyers must be in mutual contract on or before April 30, 2010 to be eligible for the credit, and must closed on or before June 30, 2010.

The New Home Sales data included other strong housing data, too. The current supply of new homes nationwide is at a multi-year low.  Along with stronger home demand, this should push Fairfield home prices higher throughout the coming months.

It's no wonder builders are bullish on the economy.