Drop in Sales Of New Homes Clouds Revival
Tuesday, March 27, 2007
Sales of new homes plummeted in February for the second consecutive month, an unexpected drop that dashed hopes of an imminent recovery in the housing market.
The Commerce Department reported yesterday that sales of new single-family houses dropped 3.9 percent last month to a seasonally adjusted annual rate of 848,000. Although the monthly decline was significant, even more telling was that it represented an 18.3 percent plunge from the seasonally adjusted annual sales rate of 1.04 million in February 2006.
The median sales price was also down from the year before, to $250,000 last month, compared with $250,800. The median is the point where half the houses sell for more and half for less.
The latest figures initially spooked Wall Street, with stocks falling early in the day. By the end of the trading session, however, the Nasdaq composite index and Standard & Poor's 500-stock index were up slightly, and the Dow Jones industrial average was down about 12 points.
Economists had expected an increase in new-home sales. A report by the National Association of Realtors last week said that sales of previously owned homes, which make up the biggest share of the housing market, rose last month at the steepest rate in three years. Analysts noted, however, that those numbers measured February's completed sales, which could have taken into account contracts signed in December and January. There were more buyers out during those two months because of the unseasonably warm weather in some parts of the country, the analysts said. The Commerce Department's figures, meanwhile, measured contracts signed in February, when the weather was more wintry across most of the country.
Either way, the weak performance in the new-homes sector was a clear sign that a glut of unsold homes and tepid demand are still affecting the housing market.
While some analysts have predicted that the market will rebound this year or by early to mid-2008, others have said they do not see that happening until the inventory drops drastically.
The opposite occurred in February, the Commerce Department said. The supply of new homes for sale increased by 1.5 percent, to 546,000. At the current sales pace, it would take 8.1 months to get through that supply, up from 7.3 months in January and 6.4 months a year ago.
Mark M. Zandi, chief economist at Moody's Economy.com, said that in a balanced market, that supply should be closer to 350,000. "The market just can't be normal until the inventory decreases," he said.
Compounding the problem is a crackdown on the mortgage industry that will most likely shut out some potential buyers. The housing boom that ended in 2005 was driven in part by the willingness of some lenders to give nontraditional mortgages to people with blemished credit or no money for down payments. An increasing number of those borrowers now face foreclosure, as their adjustable-rate mortgages reset to higher rates. The foreclosed properties would eventually be added to an already crowded market.
"I don't see us being anywhere close to a bottom," said Dean Baker, co-director of the Center for Economic and Policy Research in the District. "I think prices are going to have to fall a lot more, and then people will be in a position to buy homes."
By region, the Northeast had a 26.8 percent drop in home sales last month, the steepest decline in the country. The Midwest had a 20 percent drop. The South, which includes the Washington region, was down 7 percent. The West was the only part of the country to have an increase in sales, up 24.6 percent.