At 10:00 A.M. (EDT), we received the latest report on the rapidly improving housing market when the U.S. Department of Commerce issued new residential data for the month of January. At first blush, the report was very positive, with new home sales up sharply on both a sequential and year-over-year basis. 

Specifically, sales of new single-family houses in January came in at a seasonally adjusted annual rate of 437,000. That figure was 15.6% above the revised December figure and up a notable 28.9% from the prior-year figure of 339,000 units. The consensus expectation called for sales of roughly 381,000 new units. 

A geographic breakdown of the new home sales data also made for a nice reading. New home sales were up 54.2%, 13.6%, 16.6%, and 60.3%, year to year, in the Northeast, the Midwest, the South, and the West, respectively. The increases in the latter two regions are particularly encouraging, as those areas are the two biggest housing markets in the country, especially in terms of new residential construction.

The latest data—another positive snapshot of this improving sector—come on the heels of this morning’s encouraging report on home sale prices. Indeed, the Standard & Poor's/Case-Shiller home-price index showed that prices increased by 0.9% for the 20-City Composite in December, topping expectations of a gain of 0.5%. For the full-year 2012, home prices produced their biggest annual gain in more than six years. All these factors augur well for a continued recovery in this all-important sector of the U.S. economy. 

However, we would be remiss if we did not warn investors that the nation’s stubbornly high unemployment rate (at 7.9%) and lack of significant job creation remains a concern for the homebuilders. It stands to reason that an unemployed individual and/or one who is in fear of losing his/her job would likely not be in the marketplace for a new home, which for most is the biggest transaction of their lifetime. However, this is somewhat offset by data showing that the months’ supply of houses on the market was the smallest since March, 2005. The much improved supply/demand balance should lead to further firming of home prices in the coming months.

All in all, the latest data on new home sales and home prices are yet another sign of a strengthening housing market. The construction and sales of new homes—though only a small fraction of the nation’s total home sales—is vital to the overall health of the U.S. economy as each new property built usually creates an average of three jobs for a year and generates close to $100,000 in tax revenues. 

At the time of this article's writing, the author did not have positions in any of the companies mentioned.