New-home sales declined more than forecast in December

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Purchases of new homes declined more than projected last month and were revised down in the prior period, showing the market returned to a less exuberant pace as the year drew to a close, according to government data Thursday.

Single-family home sales fell 9.3% month-over-month, the most since August 2016, to a 625,000 annualized pace (the estimate was 675,000) after a 689,000 rate (revised from 733,000). The median sales price increased 2.6% year-over-year to $335,400.

The supply of homes at the current sales rate rose to 5.7 months from 4.9 months; 295,000 new houses were on market at the end of December. Purchases totaled 608,000 in 2017, up from 561,000 a year earlier.

The strongest annual sales in a decade reflect an improvement in fundamentals including robust job growth, historically low mortgage rates and a boost in home-equity values.

Steady growth in housing demand, December's decline notwithstanding, indicate new residential construction will remain firm into the spring selling season.

Last month's slowdown was likely related in some part to weather in the South and Midwest, according to Ben Ayers, senior economist at Nationwide Mutual Insurance Co. Homebuilder sentiment remains high and that "suggests that new home sales activity should rebound nicely in the early months of 2018," he wrote in a note.

New-home sales, tabulated when contracts get signed, account for about 10% of the market. They're considered a timelier barometer than purchases of previously owned homes, which are calculated when contracts close and are reported by the National Association of Realtors.

A sharp retracement in new home sales in December followed double-digit spikes in September and November, the fact that reflects a correction from a pickup in post-hurricane contract signings, as well as rising demand ahead of changes to the tax law earlier last year. The sales' drop in the South, the area affected by the hurricanes, is a testament to the former. Meanwhile, a decline in new home sales in the West, the region that will be bear the brunt of the new tax law reduced deductions, is a warning sign that a lot of the earlier strength in home sales was simply borrowing from the future demand.

Purchases fell in all four U.S. regions, led by a 10% drop in the Midwest and a 9.8% slide in the South. The Commerce Department said there was 90% confidence that the change in sales last month ranged from a 20.3% decrease to a 1.7% increase, underscoring the volatility of the data. The report was released jointly by the Census Bureau and Department of Housing and Urban Development in Washington.

Bloomberg News
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