Sales of new homes rose by 11.1 percent in March, according to the U.S. Commerce Department. But even better news was the new homes inventory: the lowest since 1967.

The fact that more new homes sold in March than February is not that significant, since February's sales total was among the lowest on record. Still, an increase is an increase and economists were heartened by the fact that sales were a bit stronger than forecast.

At the same time, the median price of a new home fell, suggesting some builders sold homes at break-even or a loss, to get them off the books. Also, new homes are smaller than a few years ago, resulting in a lower sales price.


It's no secret that new homes are in fierce competition with distressed properties, especially foreclosures. These homes usually sell for much less than a new home could be built.

“Investors continue to drive the market and were about 22 percent of the purchasers in March, up from 19 percent a year ago,” said economist Joel Naroff, of Naroff Economic Advisors, in Holland, Pa.

And of course, investors don't buy new homes, they look for foreclosures or short sales.

Looking for bargains

“They love those cheap distressed homes, which now make up 40 percent of the market,” Naroff said. “Given the tight lending standards cash buyers are more than welcome. To get a Fannie or Freddie loan, which are the only games in town, a borrower has to have a credit score of about 760.”

February's new home numbers were so low that March's look huge in comparison. For example, in the Northeast sales rose by 67 percent. However, the total was still at recession levels.

“Before anyone gets excited and thinks housing is on the rebound, understand that we need to more than double the March sales pace to reach decent sales levels,” Naroff said. “Prices remain soft and are down by about five percent over the year.”