New Home Sales Down in February

Sales of new homes fell sharply in February for a second consecutive month, a weaker-than-expected performance that dimmed hopes for a rebound in the troubled housing market, the Associated Press reports.

The Commerce Department reports that sales of new single-family homes declined 3.9 percent last month from January to a seasonally adjusted annual rate of 848,000, the slowest sales pace in nearly seven years.

All regions of the country except the West reported weakness in sales. In the Northeast, where home mortgage activity has been slow, sales fell by 26.8 percent from January and 36.9 percent from February 2006.

The February decline followed an even larger 15.8 percent drop in sales in January, which had been the largest one-month plunge in 13 years.

The back-to-back declines provided evidence that the housing market was continuing to struggle with lagging demand and a glut of unsold homes.

The weakness in sales pushed the price of a new home down to $250,000 in February, a drop of 0.3 percent from a year ago. It marked the second straight month that the median price fell compared with the same period a year earlier.

The performance of new-home sales was in contrast to a report last week that existing home sales rose in February by the largest amount in nearly three years.

Analysts had expected new-home sales to increase in February as well, based on consistently low mortgage rates and a prevailing view that the January plunge had overstated the weakness in housing.

The back-to-back declines in the new-home market served to support the forecasts of private analysts who believe the slowdown in real estate - housing starts in particular - has not run its course.

The housing bust is coming after a housing market boom in which sales of both new and existing homes set records for five straight years.

Some analysts see the current market slowdown as a correction from a period of speculative frenzy in which investors were buying second homes in hopes of reselling them quickly to make profits on the double-digit gains in prices in the hottest areas in the country, such as California and Florida.

The sales decline that has occurred over the last year has left a glut of unsold homes on the market, forcing home builder groups to slash prices and make a number of incentives to attract buyers.

For February, the number of unsold homes rose 1.5 percent to 546,000. That meant it would take 8.1 months to sell all of those homes at the February sales pace, up from 7.3 months in January.

How will this play out in the coming months? How will the decline influence home loan rates? Only time will tell - but don’t expect another housing boom anytime soon.

ARTICLE AND IMAGE SOURCE: Associated Press