New Home Sales Post November Gains

New home sales rose 5.5 percent in November, according to the U.S. Commerce Department. But that might not be quite as encouraging as it seems.

The 5.5 percent increase in November sales is in comparison with October's dreadful sales figures. Still, Economist Joel Naroff, of Naroff Economic Advisors, in Holland, Pa., takes it as a good sign.

"The sales pace remains pathetic but everything is relative," Naroff said. "Since hitting rock bottom in July, a consequence of the government's home buyers' credits disappearing, demand has steadily improved."

Most of the November sales gain came in the single-family portion of the market.  Condo and co-op purchases have improved modestly.  Looking across the nation, every region posted an increase in sales, but the strongest gains came in the Midwest and West.

"As for prices, they firmed but mostly in the Northeast.  With inventory declining, we could see prices rise slowly going forward," Naroff said.

Modest improvement

The new home sales report closely mirrors yesterday's report on the sales of existing homes, which showed a sizable increase over October levels, but below analysts' expectations.

Despite the month-to-month increase, November's new home sales remain more than 21 percent below the levels of November 2009. Last months average sale price for a new home was $268,700.

While the signs point to an improving housing market in 2011, Naroff says that is by no means certain. Even though mortgage rates remain historically low, he says there is a problem with both equity and credit availability.

Lack of equity

"With prices so low and appraisals using many fire sale comparables, it is hard to get much money from a home," Naroff said.  "Lacking equity, it's tough to move and without people trading up or down, demand is limited.  That not only hurts the housing market but also affects labor mobility."

New homes are also competing with foreclosures. While the cost of new construction is usually well over $100 per square foot, existing homes are selling in many markets for a little over $50 per square foot.

"While another housing bubble would not be a good idea, some decent increases in home prices would be a great help," Naroff said.