Don’t get excited by jump in new home sales

excitedBy Conor Dougherty | The Wall Street Journal

New home sales jumped to the highest level since July 2008 in January, which is really good news if it holds. But the Census new-home sales data is a choppy indicator with a small sample size, and when you take a longer look at the series it’s pretty clear that the nation’s two-year-old real estate turnaround is still largely a recovery in prices.

The building of new homes — the housing sector’s biggest contribution to annual economic growth — continues to lag badly. This disconnect goes a long way toward explaining why U.S. growth is still pretty weak some four years after the recession. It’s also why economists’ hopes that 2014 will finally be a breakout year for the economy depend on home building regaining its footing in the spring.

“The key piece for the U.S. economic outlook in 2014 is a turning point in the construction cycle,” says Ryan Sweet, an economist at Moody’s Analytics.

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