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New-home sales notch higher thanks to West Coast surge

Looking to capitalize on affordable mortgage rates, aspiring homeowners examined the residential real estate marketplace in February and liked what they found, as new-home sales picked up in intensity, particularly on the West Coast.

A seasonally adjusted total of 512,000 newly constructed single-family homes were purchased last month, according to the latest numbers published by the U.S. Department of Commerce. In January, when an upwardly adjusted 494,000 units were snagged, sales rose 2 percent.

Representing a substantial share of the nation's new-home sales activity was activity in the West. In this quadrant of the country, new-home sales soared nearly 39 percent on a month-over-month basis, based on government data. Were it not for the left coast, sales would have slipped by 9 percent, as buying activity fell 4 percent in the South, 18 percent in the Midwest and over 24 percent in the Northeast.

Ed Brady, chairman of the National Association of Home Builders, indicated that the breakdown in where new-home sales were most prevalent corresponded with what construction firms have reported.

"The February bounce back in sales is in line with our builders' reports that the housing market continues to recover at a slow but steady pace," Brady explained.

Nearly a quarter-million new homes for sale in February
Much of the slowdown stems from inadequate supply levels, as inventory has narrowed the number of choices buyers have once securing a mortgage. There were right around 240,000 new homes up for sale in February, representing a 5.6-month supply at the present pace of sales, NAHB reported.

Robert Dietz, NAHB chief economist, said that part of the reason for starts not taking place more quickly has to do with the availability of building supplies and labor. Additionally, low-interest loans are drawing more people to the market, wanting to take advantage of the affordable environment while they still can.

"Relatively low mortgage interest rates and solid job growth should keep the housing market moving ahead as we enter the spring buying season," Dietz referenced.

At the same time, though, an increasingly limited residential real estate market has the potential to drive up asking prices even further, potentially canceling out some of the benefits of low-interest payments, suggested Ryan Sweet, senior economist at Moody's Analytics.

"Existing and new home prices are rising quickly and that's really taking a bite out of housing affordability," Sweet told Reuters. "New and existing home inventories are very lean. That can hurt sales."

Predictions on what's to come
While some project optimism, confident in the notion that both starts and sales will rise as the year continues, others are less so. Sophia Kearney-Lederman, economic analyst at FTN Financial told Reuters that the housing market will "continue to be a moderate but unremarkable" supporter of the U.S. economy for the duration of 2016.

Josh Shapiro, chief economist at forecasting firm MFR, told The Associated Press that it's far too early in the game to make any predictions one way or the other.

"At this stage, it is unclear whether new-home sales are plateauing or are still in an uptrend," Shapiro said.

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