Is the Housing Market Catching a Cold?


With the help of low interest rates and inventory levels, sales of new single-family homes in the United States reached their best level in five years in 2013. However, sales have slowed in recent months as affordability issues remain.

On Monday, the U.S. Census Bureau reported that purchases of new homes, measured by contracts signed, plunged 7 percent to a seasonally adjusted 414,000-unit pace in December, compared to the downwardly revised November rate of 445,000 units. Home sales were up 4.5 percent from December 2012, but as the chart above shows, the housing market is still far below its glory days.

The results were worse-than-expected. On average, economists estimated home sales to come in at a 457,000-unit pace. It was the biggest miss of expectations since July 2013, and home sales have now declined for two consecutive months. Bitterly cold weather had a noticeable impact on the Northeast. Sales in the region crashed 36 percent to a seasonally adjusted pace of 21,000 units, compared to 33,000 units in November.

The U.S. Census Bureau also reported the median sales price on new houses sold in December was $270,200, up from $268,500 in November and $260,300 in October. The average sales price came in at $311,400, down from the record high of $340,300 in the prior month.

The seasonally adjusted estimate of new houses for sale at the end of December was 171,000 units. This represents a supply of 5 months at the current sales rate, up from only 3.9 months at the beginning of 2013. The all time high for supply hit 12.1 months in January 2009. A supply of around 6 months is typically considered to be healthy.

A total of 428,000 single-family homes were sold in 2013 — the best year since 2008. However, homebuilders across the board were not able to overlook the recent weakness in the industry. Shares of D.R. Horton (NYSE:DHI) and Toll Brothers (NYSE:TOL) dropped nearly 1 percent, while KB Home (NYSE:KBH) fell more than 2 percent.

More From Wall St. Cheat Sheet:

Follow Eric on Twitter @Mr_Eric_WSCS