What new home sales mean for the economy

Andy Uhler Dec 23, 2015
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What new home sales mean for the economy

Andy Uhler Dec 23, 2015
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We learned yesterday that existing home sales for November were down more than 10 percent — the biggest drop in five years. Today numbers from the U.S. Census Bureau show new home sales increased more than 4 percent last month. 

But Ralph McLaughlin, a housing economist at Trulia, said the first thing to recognize is: “New homes are a different beast than existing homes. They require a lot of different inputs, they require a lot of different planning, and ultimately, they require demand from the public,” he said.

New home sales, in particular, provide a bigger economic engine for the economy. Morris Davis, a real estate professor at Rutgers, argued that what some might see as a number, others see as different strands of the economy at work.

“It’s not just the number of units, it’s people building the units, how big are the units that are being built,” he said.

People like carpenters, plumbers and electricians. And the bigger the house is, the more folks that are needed swinging hammers and putting up two-by-fours. And then there’s the stuff to put in the house when it’s all built.

“There’s furniture, groceries that you want to fill the refrigerator with,” Morris said. “It’s not like people are eating more, but there is another fridge that might be filled with more groceries.”

There are probably more people looking to fill those fridges, these days. New home sales are up more than 14 percent this year.

Raphael Bostic is a real estate professor at USC.  He said these numbers shed some light on how people feel about the economy.

“When you talk to homebuilders, they’re pretty optimistic,” he said. “So I think that it’s actually a sign of some confidence in where the economy is and where it’s likely to go.” 

But it’s also probably more expensive to buy one of those new homes these days. The median price in November was $305,000 — up almost 1 percent from last year.

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