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March’s Home Sales Plunge

Just when it seemed like things were getting better, the Commerce Department said Wednesday that “sales of new homes declined 14.5 percent” in March 2014. This brings home sales down to a seasonally adjusted annual rate of 384,000.

Worse still, the Commerce Department announced that March “was the second straight monthly decline and the lowest rate since July 2013.” Clearly, the spring buying season is starting off with a huge hiccup.

“Our core view is that the housing market has stalled and won’t contribute” to overall economic growth this year, said Ian Shepherdson, chief economist at Pantheon Macroeconomics. His statement supports the current 13.3 percent decline in new-home sales over the past 12 months.

Various factors have contributed to the decline, including:

  • Rising home prices caused lower-end buyers to back off from buying.

  • Median sales prices increased 12.6 percent in March to $290,000.

  • New-home buyers continue to skim homes off the top.

  • A 5.2-month supply of existing homes for sale, down from the 6-month average supply.

Numerous construction companies have stated that warmer weather should bring the home sales back up, but whether that actually happens, only time will tell. In the meantime, 193,000 new homes went on sale in March, about 39,000 more than the same time last year.

The problem is, according to the National Association of Realtors, existing homes sales have decreased by 0.2 percent — the seventh drop in sales during the past eight months — so a portion of those new homes on the market will simply remain.

Adding to the negativity is the National Association of Home Builders / Wells Fargo builder sentiment index, which currently sits at 47. (Anything below 50 is considered poor.) The index indicates how builders feel about sales condition.

Still, builders have begun work on approximately 946,000 new homes in March, up 2.8 percent from February’s rate. Which contrasts interestingly with the fact that the number of applications for permits (an indicator of future building activity) fell 2.4 percent in March.

Obviously the market is in flux, and no one can say for certain when or how stabilization will come about — if it comes at all. Until it does, though, we’ll continue highlighting and covering the construction market developments.

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