New home sales are increasing because of the price discounting on more expensive homes (in the bubble markets) and large incentives being offered by homebuilders. These incentives include decorating and landscaping allowances, loan points/closing costs paid, and gift certificates
U.S. new home sales rose 4.9% in April to 1.20 million units, the second straight monthly increase and the highest level of the year, the Commerce Department estimated Wednesday. The rise was unexpected. Economists expected sales to fall to 1.15 million given the general weakness in the housing market. The inventory of unsold homes on the market rose by 2.4% to 565,000, representing a 5.8-month supply at the April sales pace, down from 6.0 in March. The median price of a new sold home rose 2.8% in April to $238,500 from the previous month. Median prices are up just 0.9% in the past year.
Price discounts on homes in the bubble markets have brought some new home buyers to the table [this hardly affects the median price much because in most bubble markets the vast majority of new homes are priced well above the median]. This has TEMPORARILY increased the number of new homes sold (the longterm trend is down). Furthermore, new home sales are also taking sales 'away' from existing home sales.
[These initial US Commerce New Home Sales numbers are subject to large errors. The Commerce Department writes "Since a “sale” is defined as a deposit taken or sales agreement signed, this can occur prior to a permit being issued]
Calculated Risk says "I expect April sales to be revised down too. This report shows that the housing market continues to slow down."
From the Commerce Department PDF; US New Home Inventory. (Ben Jones' Housing Blog)
The year over year increase in unsold new homes was a full 27%. Meanwhile, home sales are down 5.7% compared to April 2005.. The April New Homes Sales report does not contradict the reality of a steadily declining housing market.