ANALYST: The Bad Weather Has Dragged Down Home Sales -- But 2014 Still Looks Good

This morning, new home sales dropped 7.1% month-over-month for December, much worse than analyst expectations for a 1.9% fall.

According to Capital Economics’ Paul Diggle, it’s not as bad as first glance would suggest. This winter’s bad weather impacted the report, Diggle wrote clients this morning.

“The large decline in new home sales in December was probably driven by last month’s unseasonably severe winter weather,” Diggle writes. “Sales activity in January is likely to be weak for similar reasons. But we continue to think that new home sales will stage an encouraging rise over 2014 as a whole.” From Capital Economics:

Looking ahead, we continue to be upbeat about the outlook for new home sales. Even after recent price increases, housing remains undervalued. And mortgage rates are very low in a historical context. Alongside the strengthening in the wider economy, that points to rising new home sales this year.

Not everyone is as enthusiastic though. Barclays’ Michael Gapen writes that “the rebound in sales in Q4, albeit less robust than initially reported, suggests housing demand can digest reduced affordability, but the pace of the recovery in housing will likely slow due to stronger headwinds and less cyclical momentum.”

And here’s Diggle’s chart of annualized new home sales.

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