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Building Business

About That Year-end Pop in 2010 New-Home Sales

By Richard Defendorf

 

That the homebuilding industry’s toughest year ended with an unexpected uptick in sales of new homes suggests that prospective homebuyers are willing to commit with modest financial prodding. Sales in December increased by 17.5% over those in November thanks largely to a 71.9% jump in the West fed by new-home contracts in California, where the eligibility period for new-home and first-time homebuyer tax credits expired on December 31. 

 

The state had allocated $100 million for the tax credits, which were limited to 5% of the purchase price or $10,000, whichever is less. The credits are applied in equal amounts over three years.

 

Obviously, the new-home market nationally isn’t going to be driven by similar incentives. But California’s sales numbers for last month suggest buyer motivation is by no means dead, even as foreclosures and unemployment continue to loom large. Also in the background is the fact that, despite December’s 4.3% nationwide decline in housing starts (to a seasonally adjusted annual rate of 529,000 units), building permits in December for both single-family and multifamily projects climbed 16.7%, setting the annual pace at 635,000 units, the strongest showing in nine months.

 

Hitching a ride on GDP

Ian Shepherdson, an analyst for High Frequency Economics Ltd., based in Valhalla, New York, told the Wall Street Journal that while new-home sales are indeed bouncing along the bottom, employment is expected to increase enough throughout 2011 to nudge the new-home market to at least slightly higher ground. “Ultimately, we think a sustained acceleration in payrolls will be the key driver of stronger demand for new property, so we think the second half of this year will be a good deal better than the first,” Shepherdson said. 

 

One recent sign of economic stability is Commerce Department data, released Friday, indicating that gross domestic product grew by 3.2% during the last quarter, slightly below the pace economists had predicted but still enough to suggest the economy is at least heading toward expansion. 

 

During a meeting of economists at the International Builders’ Show earlier this month, NAHB Chief Economist David Crowe predicted 575,000 single-family home starts in 2011, a 21% increase over an estimated 475,000 units started in 2010. Though it will hardly be dramatic, that increase, he noted, will be pegged to job growth that will provide a stronger stimulus in the housing market than last year’s tax credits for homebuyers.

 

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