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Builders Fuel New Home Sale Rise

WALL STREET JOURNAL

Sales of new homes are surging in the U.S., far outpacing results for less expensive existing homes and creating an unusual disparity in the housing recovery.

The trend partly reflects the small inventory of previously owned homes, now at a 13-year low after investors picked over the long-depressed market. But the strong sales of new homes also show how the nation's home builders have mastered the art of selling, even to cash-poor buyers or those with spotty credit histories.

New-home sales jumped 28.9% in January from a year earlier to the highest annual sales pace in four years, according to data released Tuesday by the Commerce Department. Sales of previously owned homes rose 9.1%. The disparate selling pace exists even though a typical new home costs 37% more than one already built, the widest price gap since the figures started being tracked in 1968, according to an analysis of home prices by Barclays Capital.

 

The result is that for many buyers, it has become far easier to buy a new home than an existing one. "It's as if people were going to the car dealership and realizing that there aren't any used junkers left, so they're buying these shiny new SUVs," said Ivy Zelman, an independent housing analyst.

"It's much easier to buy a new home than an old one," said Ms. Riley, a 41-year-old mother of two who works as a case manager for children with developmental disabilities in Alexandria, Va. "The builder's whole attitude was, 'No worries.' They help you and they trust you. They really, really want you to get approved."

One reason why inventory levels of existing homes are so low is that investors have picked many markets clean of the best-quality distressed homes. At the same time, many homeowners, worried that prices have not yet improved sufficiently, remain reluctant to list their homes. This month, the National Association of Realtors reported that the number of homes for sale fell to 1.74 million in January, the lowest level since the year 2000.

"Steals are getting harder to find, and the number of bidders is up. At some point, you have to stop holding out for a steal because you need a place to live," said Robert Tayon, a Barclays economist. "For an increasing number of buyers, this means buying a new home."

Stephanie Poynor, a schoolteacher and mother of two, traveled from Kentucky to Tampa, Fla., last spring. After two frustrating months of looking at previously owned homes, many of which were purchased by investors before she could even make an offer, she turned to a local builder and bought the second model home she saw, a four-bedroom in a small gated community near the military base where her husband recently got a job. The Poynors paid $272,000, or nearly 10% more than they hoped to pay.

"We wanted to just go buy some place and be done with it. But we kept running into other people's baggage. Either the house wasn't livable, somebody else had it under contract, or you had to wait six months until the paperwork went through," she said. "This place was new. It didn't come with any baggage."

Builders have stepped up construction in response. Many of the top U.S. builders have reported double-digit growth in orders for new homes, leading to construction starts at an annual pace of 613,000 single-family homes in January, a gain of 20% over a year earlier, according to the latest Census figures.

This has been a lift to the economy at a time when overall growth is slow. After dragging on growth since 2006, residential fixed investment, which is driven by home building, contributed just over a quarter of a percentage point to the nation's 2.2% growth in gross domestic product last year.

New-home builders have come to rely heavily on these agencies for sales. Housing research firm Zelman & Associates reports that 50% of new homes sold in the fourth quarter of 2012 were sold to borrowers with some kind of government-guaranteed loan, with the FHA backing 31% of new-home sales with a mortgage, compared with about one in 10 five years ago.

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