New home sales jump 11.6% in Dec.

WASHINGTON (AP) – Jan. 27, 2015 – Sales of new U.S. homes accelerated strongly in December, a sign that home buying may improve this year after a lackluster 2014.

The Commerce Department said Tuesday that new home sales climbed 11.6 percent last month to a seasonally adjusted annual rate of 481,000. The gains were not enough to offset essentially flat home buying over the course of 2014, however. Just 435,000 new homes were bought last year, a modest 1.2 percent improvement from 2013.

The growth in December pointed to rising sales in 2015, buoyed by the combination of strong hiring in recent months and drastically lower mortgage rates. Home values are also rising at a slower pace, improving affordability for would-be buyers.

Last year disappointed, in part, because builders largely focused on higher-end houses, which limited the number of would-be buyers and kept the pace of construction below historic levels. Roughly 700,000 new homes were sold in the 1990s, nearly a third more than in 2014. Over the past 12 months, median prices for new homes rose 8.2 percent to $298,100

The improved health of the U.S. economy should help boost sales in the coming months.

Average rates for 30-year mortgages dropped to 3.63 percent last week, down from 4.39 percent a year ago, according to the mortgage firm Freddie Mac. That steep decline makes it cheaper for buyers to borrow, helping them afford larger and more expensive homes. So far, homeowners are primarily relying on the lower rates to refinance their mortgages. Purchases are up only 3 percent over the past 12 months, according to the Mortgage Bankers Association.

At the same time, the growth in home values has been steadily slowing, putting more properties within reach of buyers who had previously been priced out of the market. The Standard & Poor's/Case-Shiller 20-city home price index, released Tuesday, rose 4.3 percent in November from 12 months earlier. That's down slightly from a 4.5 percent pace in October and double-digit gains in early 2014.

Solid hiring over the past year should help contribute to income gains. The unemployment rate has plunged to 5.6 percent from 6.7 percent a year ago, as employers added nearly three million jobs last year, according to the Labor Department. While average wages have barely nudged upward, the job growth has contributed to more Americans with paychecks – which may spur additional home buying.

The National Association of Realtors said last week that sales of existing homes rose 2.4 percent last month to a seasonally adjusted annual rate of 5.04 million.

Construction firms still expect growth this year, although their enthusiasm has waned slightly. The National Association of Home Builders/Wells Fargo builder sentiment index fell slightly this month to 57, down one point from a revised reading of 58 in December. Despite the decrease, any reading above 50 indicates that more builders view sales conditions as good rather than poor.