Sales of new homes slipped in November, but largely held October's huge gain to a five-year high, while rising prices and upward revisions also suggest the housing recovery is still on track.
Annualized sales fell 2.1% to 464,000, but that followed a 17.6% spike in October, the Commerce Department said Tuesday. Figures for the prior three months were revised higher by a total of 88,000. Analysts had expected 450,000 in November.
"This puts us on a better pace of sales," said Derek Hamilton, global economist with Waddell & Reed. "Even with November being down, the run rate is looking quite a bit better.
On the downside, home loan applications fell 6.3% in the week ended Dec. 20, touching a low not seen since 2000, the Mortgage Bankers Association said. Applications for buying a home fell 3.5% to their lowest level in two years, indicating demand for homes is weakening as interest rates rise again.
Still, Hamilton thinks the market is facing a pause, not a down turn. While the government tries to present seasonally adjusted data, he said, weather and the holidays can make this a challenging time of year for home sales.
Several other gauges of housing health are upbeat. The Na tional Association of Home Builders' confidence index rose 4 points to 58 last week. And housing starts and permits shot up in each of the past three months, easily topping expectations.
The supply of new homes fell to 4.3 months' worth at the current sales pace, well below the historic norm of six months. TD Securities U.S. strategist Gennadiy Goldberg in a research note called that "particularly encouraging," saying that means a quicker pace of completed homes "has not overwhelmed the gradually recovering market.
In fact, Goldberg noted, tight inventory has boosted prices — to a 10.6% year-on-year increase in November.
That could turn out to be a head wind for the market if affordability falls, Hamilton said, especially if rates move higher quickly. The market reeled earlier in the year as rates shot up a full percentage point in just weeks after the Federal Reserve laid out a framework for beginning to taper its bond purchases.
Mortgage rates climbed for a seventh straight week, the MBA said. And they're likely to keep rising as the 10-year Treasury yield rose to 2.98% on Tuesday, essentially at two-year highs.
But if homebuilders finally start to feel bullish, more new homes could help. "The demand for homes is there," he said. "We've been under-building homes relative to what demographics say you should have.
The National Association of Realtors noted "pent-up demand" in a release last week. Existing-home sales fell in November, primarily on tight supply, the group said. That helped push annual home prices to their fastest increase in eight years, NAR said.
Homebuilders have said they are willing to limit new-home construction to keep price gains strong. Shares of Lennar (LEN), PulteGroup (PHM) and most homebuilders edged up Tuesday as they slowly recover from their mid-May to mid-August sell-off.
Hamilton's 2014 outlook for housing is constructive.
"We've seen the bottom. You're going to see housing indicators across the board improve, and it will contribute to GDP growth," he said.
TD's Goldberg is also optimistic.
"With labor markets on a path of gradual recovery, consumer confidence on the upswing, and the housing market the most balanced since the crisis, we continue to expect further improvement in new-home sales in the months to come," he wrote.