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Th e M Rep o RT | 49 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t ANALYTICS Department new Home sales Jump, Pending Home sales Fall short of expectations one industry economist named price growth and a decrease in homes for sale as the culprits for December's drop in pending home sales. s ales of newly built homes saw a sharp increase in December, underscoring hopes of a resurgence in a market that's been struggling over the past year. The Commerce Department estimated new home sales in December were at a seasonally adjusted annual rate of 481,000, a jump of 11.6 percent from November's downwardly revised sales rate of 431,000. Economists expected a smaller increase in sales to a rate of 452,000, while the Mortgage Bankers Association forecast a rate of 409,000. While December's report showed a solid increase, the month's activity did little to lift overall new home sales for the year. Throughout all of 2014, the government estimated new home sales came in at 435,000, up just 1.2 percent from 2013 as poor numbers in spring and early summer took a toll. Still, assuming December's numbers aren't badly impacted by revisions, it's an encouraging way to end last year and start 2015. In a recently released outlook, the National Association of Realtors (NAR) predicted new home sales would come up 37 percent in the coming year. Though other forecasts are less optimistic (Fannie Mae projects a 17.8 percent increase), hopes are high all around, especially as the Obama administration takes steps to boost access to homeownership. The first of those steps—a reduction in the Federal Housing Administration's annual mortgage insurance premiums—took effect in late January. While the cut is targeted toward helping first-time homebuyers, it should have a trickle-up effect on repeat buyers, said IHS Global Insight economists Patrick Newport and Stephanie Karol. "As more first-time buyers are empowered to purchase an existing home, the sellers of those homes will be in a better position to put down a deposit on a new one," they wrote in an analytical note. Economists also hope improvements in the labor market and consumer wages will spur an increase in household formations. One other major obstacle has diminished at least somewhat in the last year: The Commerce Department said the supply of new homes for sale at the end of December was a seasonally adjusted 219,000, a slight increase over November's stock. New home supply has been on the rise for 10 consecutive months. Prices also rebounded after a decline in November. The median price of a new home sold in December was $298,100, up from $291,600, while the average price was $377,800, up from $344,600, the Commerce Department reported. Meanwhile, pending home sales took an unexpected downward turn in December but still man- aged to finish 2014 ahead of year- ago numbers, according to a report from a major housing group. NAR reported its Pending Home Sales Index (PHSI) declined 3.7 percent in December to a reading of 100.7. Economists expected a 0.9 percent gain. Compared to December 2013, contract signings were up 6.1 percent, marking a fourth straight month of annual improvement and the highest year-over-year gain since June 2013. Lawrence Yun, chief economist for NAR, blamed the monthly downswing on a drop in for-sale homes and an acceleration in price growth. "Total inventory fell in December for the first time in 16 months, resulting in fewer choices for buyers and a modest uptick in price growth in markets throughout the country," Yun said. "With interest rates at lows not seen since early 2013, the strength in existing-sales in upcoming months will largely depend on the willingness of current homeowners to realize their equity gains from the past couple years and trade up." With jobs and consumer confidence on the rise and barriers to homeownership coming down—particularly for first-time homebuyers—Yun said he expects more demand in the months ahead. Taking an early guess, NAR projected total existing-home sales in 2015 will be around 5.26 million, an increase of 6.6 percent over last year. Pending sales were down month-over-month in all major regions, with the Northeast posting the biggest decline at 7.5 percent, as followed by the West (down 4.6 percent), the Midwest (2.8 percent), and the South (2.6 percent). Contract signings were up in all regions compared to the same month in 2013. Consumers Anticipate higher Wages, Slower home price Growth Should conSumerS' optimiStic viewS of earningS and home priceS pan out, the houSing recovery would Stand to benefit. C onsumer optimism on income growth remained fairly high in January, while expectations for home price gains in the next year fell slightly, according to survey results released last month from the Federal Reserve Bank of New York. Americans projected median earnings growth expectations of 2.5 percent over the next year, the New York Fed said, unchanged from December and "still at the high end of the range observed since the start of the series." Income growth expectations topped out at 2.7 percent in November. Median household income growth expectations retreated slightly from De- cember but still fared better than most of last year at 2.7 percent. Meanwhile, the median home price change forecast one year out dropped to 3.4 percent from 3.6 percent at the end of 2014, putting it at the lowest point since the start of that series. The combination of higher wages and slower home price growth could be a boon for the housing market, which has been held back in its recovery by stag- nant wages fueling declines in affordability. Consumers were also more positive on the labor market in January, lining up with the increase in last month's labor force participation rate. The mean perceived probability of losing one's job remained flat at 14.5 percent, while the mean perceived probability of finding a new job within three months increased to a high of 53.3 percent.

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