New home prices are up

Seems like the housing market has shaken off the last of the crisis. Bloomberg reports that new home sales are at the second-highest level since 2008 and demand is growing.

Here’s the story:

Sales of new U.S. homes climbed in April to the second-highest level in almost five years as lower borrowing costs and job gains drew more buyers into the market.

Purchases (ETSLTOTL) rose 2.3 percent to an annualized pace of 454,000 homes from 444,000 in March that was faster than first estimated, the Commerce Department said today in Washington. The median estimate of 76 economists surveyed by Bloomberg called for a gain to 425,000. The data included revisions back to January 2011. The median selling price rose to a record on sales of more expensive properties.

Demand for new and previously owned homes is sustaining progress in residential construction that is poised to keep fueling the economic expansion. Builders such as PulteGroup Inc. (PHM), home-improvement retailers like Lowe’s Cos. and lenders are benefiting from higher property values, lower mortgage rates and a pickup in household formation.

The Wall Street Journal’s story offered some caution at the top, pointing out that the increases weren’t in all markets and came at the expense of other types of home sales:

To be sure, Thursday’s numbers don’t mean new-home prices have returned to peak levels in all markets. In many markets, rising new-home prices reflect the fact that builders are selling fewer lower-priced starter homes and more move-up homes, which tend to be more expensive.

The average and median prices for April are based on 45,000 signed contracts. In the month of April 2006, when median new home prices were nearly as high as they are today, builders sold 100,000 homes. Nationally, home prices stood 29% below their 2006 peak, according to the most recent S&P/Case-Shiller index.

While the gains in sale volume have been relatively strong, some building-company executives and market experts say that sales aren’t as strong as they could be because some builders are deliberately holding back sales as a way to control supply and maximize prices. There were 156,000 new homes for sale in April, adjusted for seasonality, the report said, representing a 4.1-month supply of homes at the current sales pace—slightly above the lowest level of inventory in more than eight years.

“There was a time, as recently as six months ago, when builders were scrambling to do anything they could to sell a home,” said David Rice, a former executive at Pulte Homes and now president of New Home Star, a Chicago company that provides sales services for builders. “In the past three months, they’ve really taken their feet off the gas pedal.”

In a May 13 client report, housing-research firm Zelman & Associates noted that 60% of builders questioned in a recent survey said they had intentionally slowed sales pace in at least one community in April.

But those increases also helps spur consumer spending, according to USA Today:

Higher prices tend to make homeowners feel wealthier. That encourages consumers to spend more, which accounts for 70% of economic activity.

Federal Reserve Chairman Ben Bernanke cited the revival in housing as a significant benefit of the Fed’s super-low interest rate policies.

“Higher prices of houses and other assets, in turn, have increased household wealth and consumer confidence, spurring consumer spending and contributing to gains in production and employment,” Bernanke said in an appearance before the congressional Joint Economic Committee.

Several major homebuilders have reported strong annual increases in orders for the first three months of the year, Ryland Group Inc., said that its orders in April jumped 59% from a year earlier.

Though new homes represent only a fraction of the housing market, they have a sizable impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the National Association of Home Builders.

So for me, the next question is: What does this mean for lenders and investors? Banks are being asked to hold more capital against loans they make, which usually means they want to originate and sell the loans. It was a profitable business before.

So, who’s buying the loans? Anyone? With low interest rates some investors are turning to other types of fixed-income products to generate returns. Will there be a return of the market for residential mortgage-backed securities?

I have a lot of questions and hope that Thursday’s news will spark some enterprising reporters to cover the increase in more detail.