Ahead of the Bell: US new home sales

US new-home sales likely rose in December, but buying was sluggish for all of 2014

Associated Press
US new home sales jump 11.6 percent in December

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In this Thursday, Jan. 8, 2015 photo, a flag flaps in the breeze in front of a new home for sale in Richmond, Va. The Commerce Department reports on sales of new homes for December on Tuesday, Jan. 27, 2015. (AP Photo/Steve Helber)

WASHINGTON (AP) -- The Commerce Department reports on sales of new homes in December. The report will be issued Tuesday at 10 a.m. Eastern.

HIGHER SALES: Economists expect a 2.7 percent increase in new-home sales to a seasonally adjusted annual rate of 450,000, according to a survey by data firm FactSet. That would reverse two previous months of declining sales. In November, sales slid 1.6 percent to a seasonally adjusted annual rate of 438,000.

2014 STRUGGLES: The residential construction market basically flat-lined for 2014, although there are signs that the recent spate of hiring may combine with lower mortgage rates to pick-up sales this year.

During the first 11 months of 2014, sales of new homes ticked up a mere 0.2 percent. Builders largely focused on higher-end houses, which limited the number of would-be buyers and kept the pace of construction below historic levels. Roughly 700,000 new homes were sold in the 1990s, about a third more than in 2014.

The National Association of Home Builders/Wells Fargo builder sentiment index fell slightly this month to 57, down one point from a revised reading of 58 in December. Despite the decrease, any reading above 50 indicates that more builders view sales conditions as good rather than poor.

The improved health of the U.S. economy should help boost sales in the coming months.

Average rates for 30-year mortgages dropped to 3.63 percent last week, down from 4.39 percent a year ago, according to the mortgage firm Freddie Mac. That steep decline makes it cheaper for buyers to borrow, helping them afford larger and more expensive homes. So far, homeowners are primarily relying on the lower rates to refinance their mortgages. Purchases are up only three percent over the past 12 months, according to the Mortgage Bankers Association.

Solid hiring over the past year should help contribute to income gains. The unemployment rate has plunged to 5.6 percent from 6.7 percent a year ago, as employers added nearly three million jobs last year, according to the Labor Department. While average wages have barely nudged upward, the job growth has contributed to more Americans with paychecks — which may spur additional home-buying.

The National Association of Realtors said last week that sales of existing homes rose 2.4 percent last month to a seasonally adjusted annual rate of 5.04 million.

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