Big decline for new home sales

New home sales dropped in January, sending the annual rate to a level well below that which most economists think is healthy.

By MSN Money Partner Feb 24, 2011 2:05PM

By Derek Kravitz, Associated Press.


WASHINGTON (AP) - Sales of new U.S. homes fell significantly in January, a dismal sign after the worst year for that sector in nearly a half-century.


New-home sales dropped to a seasonally adjusted rate of 284,000 homes last month, the Commerce Department said Thursday. That's down from 325,000 in December and less than half the 600,000-a-year pace that economists view as healthy.


Bad winter weather likely hampered some sales, although the industry has been struggling since the housing bubble burst in 2006.


Last year was the fifth consecutive year that new-home sales have declined after hitting record highs during the housing boom. Buyers purchased 322,000 new homes last year, the fewest annual total on records going back 47 years. Economists say it could take years before sales return to a healthy pace.


Builders of new homes are struggling to compete in markets saturated with foreclosures. High unemployment and uncertainty over home prices have kept many potential buyers from making purchases.


Poor sales of new homes mean fewer jobs in the construction industry, which normally powers economic recoveries. On average, each new home built creates the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.


New-home sales were uneven across the U.S. In January, sales fell 36.5 percent in the West and 12.8 percent in the South. But they rose 17.1 percent in the Midwest and 54.5 percent in the Northeast.


The big declines in the West came after a huge increase in December. Buyers had rushed to take advantage of a state tax credit of up to $10,000 on new home purchases in California at the end of the month, said Joshua Shapiro, chief U.S. economist for MFR Inc.

"It would make sense that a surge in such activity took place in California during December and there was payback in January," he said.


Sales of previously occupied homes have not fared much better. While sales rose slightly last month, the seasonally adjusted annual pace of 5.36 million is still far below the 6 million homes a year needed to maintain a healthy market.


Mortgage applications are now near their lowest levels in 15 years.


The average rate on a 30-year fixed mortgage this week dipped to 4.95 percent from 5 percent, Freddie Mac said Thursday. It hit a 40-year low of 4.17 percent in November, and has been trending upward since.


About 188,000 new homes were for sale at the end of January, the lowest level since 1967. The number of homes that have received permits to begin construction has held steady over the past year while the number of those under construction and finished has plummeted.


The median sales price of a new home sold in January was $230,600, down 1.9 percent from the month before. Given the pace of new-home sales, it would take nearly 8 months to clear them off the market. Economists say a six-month supply of homes is healthy.


Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Feb 24, 2011 6:07PM
Prices of new homes were so high as to be obscene. It's time they fell in line with what they are worth. Some homes are worthless and some are not worth more than when I got out of high school in 1962!
Feb 24, 2011 3:56PM

The banks withhold inventory and jack prices up in collusion almost across the board and sales tank. Let this be a lessen in price elasticity for the gentlemen C banking economists who apparently gave their bosses bad advice and cost them billions in fait. I know you stay employed by telling your bosses what they want to hear, but how many times do you think you can get away with being wrong?


The economy has turned around, the recession is over, and if you start jacking up prices the animal spirit will spur sales and end the price control crisis. Wrong decade my friends.


It looks like my models prediction of home prices in my local market going down close to the cash equilibrium again by summer is on track.     


Anyone thinking about buying a home wait about 4 more months and buy while the banking elite are nursing their QE2 hangovers.


This is not rocket science. A downward demand cycle spurred by stagnant wages continuing to decline due to inflationary forces is a powerful economic force. Apparently, even more powerful then the FED’s printing press causality aside.


An additional oil shock is always a nice touch on the down side. Five dollars a gallon for gas can only weaken demand by further drying up cash flow in the short term. Bad for us care takers for the banks (landlords), but great for would be home OWNERS willing to cash in their 401ks, smart enough to already be cashed out of the market, and willing to walk away from the current mortgage to escape the banksters permanently.


QE3 anyone? Shale we fuel the next section of the downward spiral into the next decade?


I’m starting to see an up side for the American people.


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