New Home Sales Surge, Prices Plummet

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Wednesday, 26 May 2010 09:15

Just a quick note to prevent some mistaken reporting. The Census Department reported a 14.8 percent jump in new home sales in April from March and a 47.8 percent increase from April of 2009. However, this increase in sales was accompanied by a 9.7 plunge in the median house price.

These numbers should not be seen as contradictory. The new home sales series measures contracts. The first-time home buyers tax credit expired at the end of April, which meant that people had to have a signed contract by the end of the month. This gave them incentive to rush out and buy homes. First-time buyers are likely to be concentrated in the low end of the market. This means that a surge in home sales coupled with a skewing to lower priced homes is exactly what we should have expected.