Sales of new homes rebounded handily in December, a signal of continued strength in the housing market.

Sales ran at an annual pace of 544,000, the highest since February, the Commerce Department said Wednesday. Economists surveyed by MarketWatch had forecast a 506,000 pace.

That represented a 10.8% increase over a slightly upwardly revised November pace of 491,000. New home sales are volatile and often revised, but the trend has been generally up. December’s number was 9.9% higher than the same period a year ago, and there were 501,000 new homes sold during 2015, a 14.5% increase over 2014.
Still, new-home sales are a fraction of what they used to be, even before the housing bubble began to swell. Some builders have found it difficult to attract workers, many of whom left the industry when the bubble burst. Many have remained tentative about building too many homes as the economic recovery remained tepid and wages stagnant.

Many builders have responded to those market conditions by targeting higher-end customers. Prices have risen steadily over the past few years. They averaged $294,575 throughout 2015, up 4% compared to 2014’s average.

Builders, and economists, want to see more first-time buyers entering the market, which would require more moderately-priced homes. That’s a strategy that has worked for the country’s largest builder, D.R. Horton DHI, -0.59% company executives said on a Monday earnings call.

Read: First-time buyers slowly return to housing market

Many builders have seen solid business growth over the past few years, even as their stocks have struggled. Lennar LEN, +0.12% shares have declined about 9% over the past 12 months, while Toll Brothers TOL, -1.12% is down 28%.

The sales data help confirm that the housing market is strengthening, Pantheon Macroeconomic Chief Economist Ian Shepherdson wrote in a note Wednesday. “The consensus always looked timid, given the very warm weather in December; new home sales are measured at the point contracts are signed, which often happens at sales offices at construction sites. Unseasonably warm winter weather makes these sites much more appealing places to visit.”

But other data, including builder sentiment and mortgage applications, signal stronger activity than the pace of new home sales suggest, Shepherdson wrote, “so we have to expect further gains over the next few months.”

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http://www.marketwatch.com/story/new-home-sales-soar-to-annual-rate-of-544000-2016-01-27