Implications: New home sales spiked sharply upward in March, surging to an annual rate of 411,000. The 26.9% increase was the biggest one-month gain since 1963. In addition, sales were revised upward for January and February. The faster pace of sales went a long way to reducing the months' supply of new homes to 6.7, the lowest level in more than four years. Today's blowout number is due to three factors. First, after unusually harsh winter weather in February, March was far milder, making it easier for people to view homes and sign a contract on a new home. Second, the homebuyer tax credit runs out at the end of April, so some buyers are probably rushing to take advantage of the credit. That said, we note that the largest surge in new home sales in 2009 came in July, which was well before the credit was set to expire in November. The fact that the latest surge in sales is happening so close to the expiration of the credit – when less time is available for closing on these homes – suggests the credit is less of a factor this time around. That leaves us with the third factor driving the gains in sales, which is a combination of an improving economy with homes that are substantially more affordable than they were a few years ago. New home sales will not go up every month or even every quarter, but we believe they will continue to trend upward over the next couple of years eventually getting to a 950,000 annual sales pace.
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