better homes and gardens magazine march 2017

WASHINGTON (MarketWatch) -- Boosted by warmer weather in the Northeast and Midwest, sales of new homes increased by 2.6% in March to a seasonally adjusted annual rate of 858,000, the Commerce Department reported Wednesday.

Sales of new homes were off 23.5% compared with March 2006.

Despite the small gain, economists saw little to cheer about in the numbers.

"The spring season is off to a rocky start," concluded economists at Lehman Bros.

"The numbers are bound to get even worse over the coming months," wrote Richard Moody, chief economist for Mission Residential, in a research note.

"The next three months are crunch time for the housing market," Stephen Stanley, chief economist for RBS Greenwich Capital, wrote in an e-mail. "It is the spring selling season, a critical time of the year, and it is the period during which the fallout from the subprime situation will show itself."

The inventory of unsold homes rose by 1,000 to 545,000 in March, representing a 7.8-month supply. The inventory is down 1.4% compared with a year earlier, the first year-over-year decline in inventories since June 2001.

The median sales price rose 6.4% year-over-year to $254,000, as luxury homes continued to increase their market share. Homes costing more than $750,000 accounted for a record 6% of sales, up from 4% in February. Read the full report.

The March sales pace was weaker than the 895,000 expected by economists surveyed by MarketWatch. See Economic Calendar. Sales in the previous three months were revised lower as well. February's revised annualized sales pace of 836,000 was the lowest since September 1999.

On Tuesday, the National Association of Realtors reported sales of existing homes plunged 8.4% in March, the biggest decline in 18 years. See full story.

Combined, sales of new and existing homes dipped below a 7 million annual pace in March for the first time since April 2003. Total home sales peaked at 8.497 million in July 2005.

In a separate report, the Commerce Department said orders for durable goods rose 3.4% in March, led by a surge in aircraft orders and robust growth in core capital equipment orders. See full story.

Details

The increase in sales in March came in two regions that saw much improved weather in March compared with February. Sales fell in the other two regions.

Sales jumped 50% in the Northeast after falling 21% in February. Sales rose 9.8% in the Midwest in March after falling 23% in February.

In the West, sales fell 0.9% in March. Sales dropped 2.7% in the South, the seventh consecutive decline in the biggest region for new home sales.

For the first time in 10 months, the number of completed homes on the market fell, Stanley noted. In the past year, the number of unsold completed homes is up 37%.

The government cautions that its housing data are subject to large sampling and other statistical errors. Large revisions are common.

The standard error of 12.6% is so high, in fact, that the government cannot be sure in most months whether sales rose or fell.

It can take up to six months for a trend in sales to emerge. New-home sales have averaged 924,000 per month over the past six months, compared with 951,000 in the six months ending in February. The six-month sales average is now down 23% from last March's 1.20 million pace.

Weather conditions can play havoc with housing data in the winter months. Most observers say sales in the prime spring selling months of March, April and May will set the tone for this year's sales.

Home builders have piled on incentives, including offering free vacations and new cars, to sell homes and reduce inventories. Such incentives are not subtracted from the sales price reported to the government.

Sales are reported when a contract is signed, not at the closing of the sale. Home builders have reported a large increase in cancellations in recent months. Cancellations are not reflected in the government data, so the reported sales are likely overstated.

"We generally take the optimistic view that home sales will remain relatively steady going forward, but our degree of confidence is pretty low right now because conditions are in flux and no one really knows what the market will look like in three months' time," Stanley said.