FEB 26, 2014 12:57pm ET

Sales of New Homes Unexpectedly Climb to Five-Year High

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Purchases of new homes unexpectedly climbed in January to the highest level in more than five years, showing underlying strength in the industry even in the midst of unusually harsh weather.

Sales increased 9.6% to a 468,000 annualized pace, exceeding the highest estimate of economists surveyed by Bloomberg and the most since July 2008, figures from the Commerce Department showed today in Washington. Demand improved in three of four regions.

Home remodeling companies such as Mohawk Industries Inc. remain upbeat about the market’s prospects for 2014 as property values climb and the economy improves. Nonetheless, limited housing supply, rising borrowing costs and still-tight credit conditions are preventing the industry from making even bigger strides.

“Overall, despite the weather, consumer confidence is holding in OK,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, N.Y., said before the report. “We’ll start to see home sales trend up again.”

The median forecast of 82 economists surveyed by Bloomberg called for 400,000. Estimates in the Bloomberg survey ranged from 380,000 to 442,000. December sales were revised up to 427,000 from an originally reported 414,000 pace. For all of 2013, demand jumped 16.3% to 428,000, the most in five years.

The median sales price rose 3.4% last month from January 2013 to $260,100, today’s report showed.

The Northeast led the advance last month with a 73.7% surge, the biggest jump since July 2012. Sales climbed 11% in the West and 10.4% in the South. They dropped 17.2% in the Midwest.

Inclement weather also might have weighed on the housing market as frozen ground kept builders from starting work and buyers from shopping for properties. Last month was the coldest start to the year since 2011, according to the National Oceanic and Atmospheric Administration.

The months’ supply of homes declined to 4.7, the fewest since June, from 5.2 in December. There were 184,000 new houses on the market at the end of January, the same as in December.

New-home sales, which account for about 7% of the residential market, are tabulated when contracts are signed, making them a timelier barometer than transactions on existing homes.

Housing starts fell 16% last month to an 880,000 annualized rate following December’s revised 1.05 million, the Commerce Department reported last week. The decrease was the biggest since February 2011.

Permits for future projects showed a smaller drop in the report—a sign activity may stabilize as the weather improves.

Transactions for previously owned homes also weakened in January, declining for the fifth time in six months, figures from the National Association of Realtors showed last week. Purchases decreased 5.1% to a 4.62 million annual rate, the fewest since July 2012. Sales fell in all four regions of the country, indicating unusually frigid temperatures were only partly to blame.

Higher mortgage rates are limiting affordability for buyers, with borrowing costs climbing since mid-2013. The 30-year fixed mortgage rate averaged 4.33% in the week ended Feb. 20, up from 3.35% in early May 2013, according to data from Freddie Mac.

The weather might be weighing on the market more heavily in February. Builder confidence also slumped in all four regions this month as potential buyer traffic and sales slowed, the National Association of Home Builders/Wells Fargo sentiment gauge showed last week.

The measure slumped to 46 from 56 in January, the biggest decline since monthly record-keeping began in 1985. Readings less than 50 mean more respondents reported poor market conditions than good.

Executives at Mohawk Industries in Calhoun, Ga., which makes residential and commercial flooring, still see strength for the industry in the year ahead.

“Our future optimism is supported by a number of leading indicators that anticipate continued improvement in new construction and remodeling,” CEO Jeffrey Lorberbaum said on a Feb. 21 earnings call, citing an NAHB remodeling index that has held at its highest level in 10 years in the first quarter this year.

“The improvement in remodeling is being driven by an improving economy, higher housing prices as well as growing sales of existing homes,” Lorberbaum said.

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